There’s a rift be­tween in­fla­tion and pol­icy bias

The Star Early Edition - - BUSINESS REPORT - Rahul Karunakar

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). – Reuters

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