As inflation has moved upward, the bank’s belief has changed that the recent high inflation readings were only fleeting. Ambler and Chronic said sustained government spending was needed in the early days of the pandemic, but less so now. They suggest that the policy stance is behind the current upward pressure on pricing as total spending exceeds current production capacity.
In their memos, both authors also noted that similar mistakes have been made in other countries, resulting in a similar inflationary response. In December, Australia had 3.5% inflation, the Eurozone 5%, the United Kingdom 5.4%, and the United States reported an astonishing 7%. In each case, the headline inflation rate has risen since November.
“Yes, inflation is a worldwide phenomenon, but mainly because almost all countries are following similar inflation policies,” the two authors said. “As prices continue to rise, however, the world’s central banks have become significantly more aggressive.”
He cited the Bank of England’s decision in December to raise its policy rate by 25 basis points, the first time it has done so since the pandemic began. The US Federal Reserve has announced that it will raise its policy rate in March, and will also begin shrinking its balance sheet at that time.
Ambler and Chronic said that home prices could continue to rise as a result of unhelpful changes in global demographics. He referred to the 2020 book The Great Demographic Reversal, where authors Charles Goodhart and Manoj Pradhan describe how temporary demographic factors, particularly labor shortages created by the integration of China and Eastern Europe into the world economy, have driven world inflation. tilted downwards. recent years.
