Inflation to remain persistent amid geopolitical tensions, economist says

Inflation is projected to remain “more persistent” as a result of geopolitical tensions and tightness of the labour markets, despite monetary policy efforts to tame it, according to a leading economist.

“Inflation is going to surprise on the upside, both in the US and in Europe,” Nouriel Roubini, professor emeritus of economics and international business at New York University’s Stern School of Business, told the Qatar Economic Forum yesterday. “Labour markets are very tight and the unemployment rate is at historical lows,” he said.

“Geopolitical tensions are going to fragment the world that may lead to further spikes in commodity prices.”

Inflation continues to remain high in the US, the world’s largest economy, and the EU as a result of supply chain disruptions caused due to the coronavirus pandemic, geopolitical tensions, as well as the Ukraine conflict. Inflation in the US peaked last June at 9.1 per cent, the highest since 1981.

The US Federal Reserve this month once again raised interest rates, marking its 10th consecutive increase as it seeks to bring inflation down to its target range of 2 per cent.

“The Fed is not done yet, even in June, we may have another hike and certainly the ECB [European Central Bank] has much more work to do,” said Mr Roubini, who is known for his doom-laden predictions.

The annual rate of inflation in the UK eased to 8.7 per cent last month, compared with 10.1 per cent in March, according to the Office for National Statistics.

Central banks are facing a “dilemma or a better trilemma”, as they focus on trying to achieve price and financial stability while trying to avoid a hard landing. “If they have to raise rates more, as I expect, to fight inflation, eventually, there may be a hard landing and financial instability and if they don’t raise rates enough then there’s a risk of the de-anchoring of inflation and inflation expectations,” Mr Roubini said.

Meanwhile, Qatar’s Central Bank governor Sheikh Bandar bin Mohammed Al Thani said the country’s currency will remain pegged to the US dollar since its monetary policy is appropriate for Qatar’s economy.

“Our main export is energy and the main revenue is in dollars so it is a very appropriate policy to have to keep our currency pegged to the US dollar. We don’t see an immediate need to change that policy,” Mr Al Thani told the forum.