The head of the Bank for International Settlements has warned that the world faces a new era of high inflation and interest rates while deteriorating relations between the West, Russia and China and the fallout from the Corona crisis push globalization back.
The President of the Bank for International Settlements is consistent with what he said to the CEO and Chairman of the Board of Directors of BlackRock, Larry Fink, the largest asset manager in the world, who said two weeks ago that the war between Russia and Ukraine put an end to the globalization we have witnessed over the past three decades.
The sharp rise in global energy and food prices means that nearly 60% of advanced economies now have year-on-year inflation above 5%, the highest rate since the late 1980s, while it is above 7% in more than half of the developing world.
“We need to be open to the possibility that the inflationary environment is changing fundamentally, if my thesis is correct, then central banks will need to adjust their policy,” Augustin Carstens, Group General Manager for the Bank for International Settlements, said on Tuesday.
Putin warns of global food crisis
Russia’s president said on Tuesday that his country should closely monitor its food exports to hostile countries as Western sanctions sparked a global food crisis and sharp increases in energy prices.
Putin warned that rising energy prices, combined with a shortage of agricultural fertilizers, would force the West to print money to buy supplies, leading to food shortages among the poorest countries.
“They will inevitably exacerbate food shortages in the poorest regions of the world, they will provoke new waves of immigration and, in general, push up food prices further,” he said.
Inflation hits the world
Bank for International Settlements President Augustin Carstens pointed to economists’ forecasts now pointing to inflation above 4.5% in the US and most of Europe over the next two years and above 3.5% in many other advanced economies.
“Most likely, this will require real interest rates to rise above neutral levels for some time in order to slow the pace of demand,” Carstens said.
He also urged governments to resist the temptation to try to offset the brunt of inflation or higher interest rates, saying “the key to higher sustainable growth cannot be expansionary monetary or fiscal policy.”
“Many of the economic challenges we face today stem from ignoring supply-side policies over the past 10 years or more,” Carstens added.
