There’s a rift between inflation and policy bias

EXPECTATIONS are firming for major central banks to turn further away from ultra-easy monetary policy, despite scant evidence of a pick-up in inflation, polls of more than 500 economists showed yesterday.

One striking conclusion from surveys covering more than 40 economies is the rift opening between what most top central banks target – inflation – and policy bias, prompting many economists to warn about the rising danger of policy error.

“It is one of the most striking economic puzzles of our times: why, when unemployment rates are near historic lows in so many parts of the western world, is wage growth so sluggish and inflation so subdued,” noted Janet Henry, global chief economist at HSBC. “So the overall message is that central banks will need to remain cautious about the pace at which they withdraw monetary support.”

The latest polls also underscore ongoing optimism about the world economy’s momentum, with analysts particularly upbeat on Europe, as well as the economies of India and China, which together have nearly 40 percent of the world’s population. Almost 150 economists who answered an additional question said it is more likely that the global economy will do better than worse over the coming year.

This coincides with still rather bullish opinions on how world stock markets are likely to perform in coming months.

But a significant minority still see predominantly negative economic risks, even after more than a decade of monetary stimulus and asset purchases from major central banks amounting to some $15 trillion (R193.73trln).