Even a calamity of disease, death and economic destruction afflicting the world all at once isn’t enough to suppress the notion in some quarters that inflation could return with a vengeance.
The coronavirus crisis has killed hundreds of thousands, incapacitated millions and affected the livelihoods of billions – prompting policymakers to fear a deflation spiral reminiscent of the Great Depression. But economists including former Bank of England official Charles Goodhart, and investors such as BNP Paribas Asset Management, are asking if a different phenomenon lurks in the wreckage of global growth.
In terms of tail risks not being focused on, inflation is definitely one of them.
Such contrarians wonder if an environment of ultra-loose monetary and fiscal easing, commodity shortages, frayed supply chains and braking globalisation might be fertile ground for surging consumer prices. Reinforcing that shift, monetary authorities could face pressure to keep interest rates low, capping the cost of servicing ballooned government debt while allowing inflation to erode it too.
Even some traditionally deflation-wary thinkers have begun pondering that outcome. Former International Monetary Fund chief economist Olivier Blanchard recently wrote that high inflation is “unlikely but not impossible", a sentiment echoed by former European Central Bank policymaker Peter Praet.
“I wouldn’t say that it’s a given that we’re going to be in a longer-term inflationary environment,” said Karen Ward, chief market strategist Emea at JP Morgan Asset Management. “But I wouldn’t say it’s going to be a negligible probability either.”
A limited dose of inflation might be welcome to central bankers who have spent trillions of dollars over the years in stimulus to achieve that. But such a prospect is far from their minds at present as they try to help economies facing eye-watering increases in unemployment. Almost half of the world’s workforce is in danger of losing livelihoods from the crisis, according to the International Labour Organisation.
“The deflationary shock is dominating, that’s absolutely clear,” Mr Praet said in an interview. “There’s a collapse of demand.”
Markets reflect that view, in tune with the oil slump and the prevailing perspective of weak prices sapped by adverse demographics, new technologies and globalisation. Inflation expectations, as proxied by five-year forward swap rates, are near record lows in the US and Europe. The UK 10-year break even rate is down nearly three quarters of a point below last year’s peak.
Some investors see things differently. BNP Paribas Asset Management, which oversees more than $450 billion (Dh1.7bn), has started building an overweight position in commodities for the first time in four years, while going underweight bonds. Ardea Investment Management, a Sydney-based hedge fund, said it “materially” added inflation exposure from late March after the collapse in market expectations of price growth.
“In terms of tail risks not being focused on, inflation is definitely one of them,” said Gopi Karunakaran, a money manager at Ardea.
That narrative diverges from another argument over the years – for example from Germany’s Bundesbank – that underlying conditions in some economies have long supported a pickup in prices.
One strand emphasises the synchronised stimulus – with monetary easing supercharged by fiscal largesse – as opposed to the asymmetric response during the financial crisis, when central banks cut rates and started quantitative easing, but governments reined in budgets.
“What we are doing is creating a policy framework that has an inflation bias in it, which is the first time we’ve had that in generations,” said Dario Perkins, chief European economist at TS Lombard in London and a former UK Treasury official. “The policy response is a wartime policy response.”
That conflict theme is one that Mr Goodhart agrees with. In a March 27 article with Manoj Pradhan, founder of Talking Heads Macroeconomics, he wrote that commodity costs will rebound with an economic recovery after lockdowns are lifted and stimulus takes effect. Inflation could exceed 5 per cent in 2021, and perhaps even reach 10 per cent – outcomes resembling the aftermaths of the First and Second World Wars.
“The monetary and fiscal expansion is aimed at, and will succeed at, putting money in the hands of people,” Mr Goodhart, a BOE rate setter from 1997 until 2000, said in an interview. “There will be some degree of pent-up demand.”
Goods disruptions caused by the virus, for example with Brazilian farmers unable to harvest coffee beans, might also linger. Colin Harte, a multi-asset portfolio manager at BNP Paribas Asset Management, warns that the supply side “could be more damaged than we realised".
The further consequences of a potential unwinding of globalisation, and a renewed focus on local production, builds on that narrative.
“In the latter stages of the recovery, amid continued deglobalisation in goods trade and less elastic global supply, fiscal policies may begin to stoke inflation,” Berenberg senior economist Kallum Pickering said.
Some economic data might already point to price pressures. US money supply is surging, and Tim Congdon, a long-time watcher of such data, anticipates it will see its largest increase in peacetime this year – followed by an “inflationary boom".
For some analysts however, the prospect of inflation is seriously remote in a world where unemployment is going through the roof.
“It is naive to think everyone is going to get their jobs back when this pandemic virus goes away,” said Chris Rupkey, chief financial economist at MUFG Union Bank. “Massive job losses mean price declines for many goods are on the way.”
For Mr Goodhart’s thesis of “double-digit” inflation to unfold, Mr Perkins reckons authorities would need to succeed relatively quickly in limiting deaths and shoring up growth, which isn’t a given. He isn’t worried.
Mr Blanchard, in an April 24 article for the Peterson Institute for International Economics, also sees a far greater probability of low inflation. But a combination of swelling public debt, a jump in real interest rates, and deliberately loose monetary policy to aid government financing, could produce a different outcome.
“It would be a dream scenario for politicians that at some point inflation goes up,” Mr Praet said. “It’s not impossible. But I think the structural consequences of this shock go well beyond the simple narrative of a normalisation, once we have a vaccine.”
More on Palestine-Israeli relations
Film: In Syria
Dir: Philippe Van Leeuw
Starring: Hiam Abbass, Diamand Bo Abboud, Mohsen Abbas and Juliette Navis
Verdict: Four stars
10 tips for entry-level job seekers
- Have an up-to-date, professional LinkedIn profile. If you don’t have a LinkedIn account, set one up today. Avoid poor-quality profile pictures with distracting backgrounds. Include a professional summary and begin to grow your network.
- Keep track of the job trends in your sector through the news. Apply for job alerts at your dream organisations and the types of jobs you want – LinkedIn uses AI to share similar relevant jobs based on your selections.
- Double check that you’ve highlighted relevant skills on your resume and LinkedIn profile.
- For most entry-level jobs, your resume will first be filtered by an applicant tracking system for keywords. Look closely at the description of the job you are applying for and mirror the language as much as possible (while being honest and accurate about your skills and experience).
- Keep your CV professional and in a simple format – make sure you tailor your cover letter and application to the company and role.
- Go online and look for details on job specifications for your target position. Make a list of skills required and set yourself some learning goals to tick off all the necessary skills one by one.
- Don’t be afraid to reach outside your immediate friends and family to other acquaintances and let them know you are looking for new opportunities.
- Make sure you’ve set your LinkedIn profile to signal that you are “open to opportunities”. Also be sure to use LinkedIn to search for people who are still actively hiring by searching for those that have the headline “I’m hiring” or “We’re hiring” in their profile.
- Prepare for online interviews using mock interview tools. Even before landing interviews, it can be useful to start practising.
- Be professional and patient. Always be professional with whoever you are interacting with throughout your search process, this will be remembered. You need to be patient, dedicated and not give up on your search. Candidates need to make sure they are following up appropriately for roles they have applied.
Arda Atalay, head of Mena private sector at LinkedIn Talent Solutions, Rudy Bier, managing partner of Kinetic Business Solutions and Ben Kinerman Daltrey, co-founder of KinFitz
At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
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Killing of Qassem Suleimani
MOUNTAINHEAD REVIEW
Starring: Ramy Youssef, Steve Carell, Jason Schwartzman
Director: Jesse Armstrong
Rating: 3.5/5
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Q&A with Dash Berlin
Welcome back. What was it like to return to RAK and to play for fans out here again?
It’s an amazing feeling to be back in the passionate UAE again. Seeing the fans having a great time that is what it’s all about.
You're currently touring the globe as part of your Legends of the Feels Tour. How important is it to you to include the Middle East in the schedule?
The tour is doing really well and is extensive and intensive at the same time travelling all over the globe. My Middle Eastern fans are very dear to me, it’s good to be back.
You mix tracks that people know and love, but you also have a visually impressive set too (graphics etc). Is that the secret recipe to Dash Berlin's live gigs?
People enjoying the combination of the music and visuals are the key factor in the success of the Legends Of The Feel tour 2018.
Have you had some time to explore Ras al Khaimah too? If so, what have you been up to?
Coming fresh out of Las Vegas where I continue my 7th annual year DJ residency at Marquee, I decided it was a perfect moment to catch some sun rays and enjoy the warm hospitality of Bab Al Bahr.
The Cairo Statement
1: Commit to countering all types of terrorism and extremism in all their manifestations
2: Denounce violence and the rhetoric of hatred
3: Adhere to the full compliance with the Riyadh accord of 2014 and the subsequent meeting and executive procedures approved in 2014 by the GCC
4: Comply with all recommendations of the Summit between the US and Muslim countries held in May 2017 in Saudi Arabia.
5: Refrain from interfering in the internal affairs of countries and of supporting rogue entities.
6: Carry out the responsibility of all the countries with the international community to counter all manifestations of extremism and terrorism that threaten international peace and security
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Nayanthara: Beyond The Fairy Tale
Starring: Nayanthara, Vignesh Shivan, Radhika Sarathkumar, Nagarjuna Akkineni
Director: Amith Krishnan
Rating: 3.5/5
Yemen's Bahais and the charges they often face
The Baha'i faith was made known in Yemen in the 19th century, first introduced by an Iranian man named Ali Muhammad Al Shirazi, considered the Herald of the Baha'i faith in 1844.
The Baha'i faith has had a growing number of followers in recent years despite persecution in Yemen and Iran.
Today, some 2,000 Baha'is reside in Yemen, according to Insaf.
"The 24 defendants represented by the House of Justice, which has intelligence outfits from the uS and the UK working to carry out an espionage scheme in Yemen under the guise of religion.. aimed to impant and found the Bahai sect on Yemeni soil by bringing foreign Bahais from abroad and homing them in Yemen," the charge sheet said.
Baha'Ullah, the founder of the Bahai faith, was exiled by the Ottoman Empire in 1868 from Iran to what is now Israel. Now, the Bahai faith's highest governing body, known as the Universal House of Justice, is based in the Israeli city of Haifa, which the Bahais turn towards during prayer.
The Houthis cite this as collective "evidence" of Bahai "links" to Israel - which the Houthis consider their enemy.
More from Rashmee Roshan Lall
BUNDESLIGA FIXTURES
Friday Hertha Berlin v Union Berlin (11.30pm)
Saturday Freiburg v Borussia Monchengladbach, Eintracht Frankfurt v Borussia Dortmund, Cologne v Wolfsburg, Arminia Bielefeld v Mainz (6.30pm) Bayern Munich v RB Leipzig (9.30pm)
Sunday Werder Bremen v Stuttgart (6.30pm), Schalke v Bayer Leverkusen (9pm)
Monday Hoffenheim v Augsburg (11.30pm)