Can We Contain the Global Inflation Crisis?
May 19th, 2008 | By Merryn Somerset Webb | Category: Politics & EconomicsSecondly, local governments are increasingly giving up on the idea of local subsidies on oil consumption, thus removing the historical protection local populations have hitherto been afforded from the vagaries of the international oil price.
This is not an issue for the major oil exporters of course and petrol still costs less than $1 per gallon in countries such as Saudi Arabia and Venezuela, but it is increasingly a matter for serious concern in countries such as India, Thailand and Indonesia where local subsidies have been halted, and may become an issue in China although oil imports are still relatively modest when set against the overall size of the country’s population.
Conclusion
Although we continue to argue that for developed Western economies inflationary pressure is a lagging indicator, not a leading indicator, we fully accept that, in the round, inflation and the authorities’ reaction to it is becoming the primary driver of macro economic policy measures. As a consequence the outlook for growth has become much less assured.
In the United States it is estimated that the combination of higher gasoline prices, coupled with the ongoing deleveraging process following the credit crunch is at least twice as powerful as the coming temporary fiscal stimulus. In Europe, inflationary pressure has been rising and given a relatively limited exposure to the first round of the credit crisis so far, the European Central bank has kept regional base rates on hold at 4.0%. The Bank of England has been more pro-active but overall regional growth is beginning to slow appreciably. Elsewhere, the outlook for growth is even worse. Sustained inflationary pressure is now apparent in Latin America, Africa, Australia, Japan and elsewhere around East and South Asia.
Inflation is rapidly becoming a crisis that policymakers in both the developed and developing world are not well equipped to deal with. How well the lessons from previous inflation shocks are learnt and acted upon will determine how persistent and severe the current crisis proves to be.
Source: Can We Contain the Global Inflation Crisis?
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Merryn Somerset Webb is the editor of MoneyWeek. In 1998, Merryn became a financial writer for The Week. In 2000, when MoneyWeek was launched, she became editor. Merryn has recently published a book on personal finance for women, Love is Not Enough: The Smart Woman's Guide to Making (and Keeping) Money.