The bad manners of the inflationary expectants

The main central bank banks have lost control of inflation expectations of consumers and costs will increase. If salary increases are accelerated during the next quarter, those in charge of monetary policy will be obliged to respond to the company by drastically increasing the interest rates, or the contrary will be lost with more credibility.

EDIMBURGO – In the requirements for the habit of banker habitual does not require that the art of the palabra, nor is it required that connect the capacity of creating elegant paraffins. Haste haque poco, many of the principals responsible for the monetary policies are governed by the principle of “what is not discussed, will be olvida”. El lema de Montagu Norman, gobernador del Banco de Inglaterra entre 1920 y 1944, era “nunca des explicaciones ni ofrezcas disculpas”. In a similar manner, Alan Greenspan, President of the Federal Reserve of the United States, observed with an order that “learn to fly with great incoherence”.

Pero esas ideas quedaron obsoletas. The high-level officials of the Bank of England (BoE) dieron, on average, only 13 speeches per year in the 1990s decade. We observe a similar pattern in other central banks.

It is not uncommon for those in charge of central banks to aspire to be public figures (in their internal affairs, many prefer Norman’s emphasis), but it seems that the inflationary regimes operate thanks to the clear and credible management of las expectativas. If they persuade economic actors to increase their metrics, then part of the time they work (moderating their wage demands and maintaining the stability of prices).

The communications of the central banks, entonces, importan. For those in charge of monetary policy without his options … and his experience in the last months is unfortunate. In September, Jerome Powell, President of the Fed, announced that he would raise inflation by pointing out that he had passed the “transition” era. Christine Lagarde, President of the Central Bank of Europe, performed her speeches, and by November the term will be repeated throughout the Western world.

But in December, with 7% inflation in the United States, the message was changed and the “transition” day would be fashionable. Powell told us now that “it will probably be a good time to start using this word,” said Janet Yellen, secretary of the United States Treasury -you and Powell’s predecessor to the Fed, recognizing that “the description was not accepted.”

Pocas veces the life of a financial term fue tan breve. “Transitorio” is located in the lexicographic cement of the central banks, together with the “prospective orientation”. Sic transit, como dirían los romanos.

Does it import an excessively abrupt 180-degree turn? Temo que sí.

The speeches are solely a part of the set of communications that central banks use to influence inflationary expectations. The monetary authorities are also launching enthusiastically on social media – especially on Twitter, while the Fed currently has more than 800,000 followers and the BCE, more than 650,000 – with publications that frequently outperform inflation.

But there is evidence to the contrary that this message is not clear and that the people do not trust it in the central banks as they are created. Hecho, less than 20% of higher education workers know that the Fed’s objective inflation is 2%. Surprisingly, 40% believe that their inflation target is 10% or more.

Many also agree that recent inflation has led to more indications being made by official statistics. In this case, it is possible that some have no reason to believe that the different social strata have different rates of inflation. For example, the price of food and energy has a disproportionate effect on the poorest.

Central banks like to focus on low-inflation inflation, which excludes placental factors – specifically, algae in food and energy prices – which monetary authorities can not control. It can be explained that those responsible for the policies consider inflation to be a “transitory”, while the expectations of consumers’ prices, on the contrary, depend on the inflation rate that we are experimenting with, and the costs of food and energy is a significant component in the presumptions of many people.

It is probable that consumers and higher education countries are aware that inflation will be greater this year than the economists of these countries. On average, economists predict a 3.7% inflation rate next year. The company managers estimate that there will be a small increase of 4.1%, while the higher hopes will increase prices by 4.7%. The expectations of the higher median places are also higher. This pessimism certainly influences salary advertisements, as it is obvious.

What is the reason? I’ll take care of you soon. Central banks have some persuasive arguments to suggest that inflation will increase next year. For example, if a mayor requests refrigeration, the costs of energy will increase during the winter in the northern hemisphere.

But the future of energy costs is very short and is influenced by unpredictable geopolitical risks, not only in terms of supply and demand, which can be modeled more easily. The most useful indicator in this sense can be the number of Russian tropes placed on the Ukrainian front (a statistic that usually recovers central banks).

For now, the position of central banks is not desperate: hyperinflation does not stop at the strength of the equine. The Fed is able to maintain that the level of prices is simply declining as hubiera tenido are the leaders of the hubiesen politicians logrado its annual inflation rate of 2% all since the year 2000. In the euro zone, the prices are only 10% per debajo de ese nivel.

As for the costs of losing control over the inflationary expectations of consumers -also that the central banks of Paris have logrado- podrían be raised. The evolution of wage agreements during the next quarter will be fundamental. If wage subsidies are accelerated, central banks will be obliged to respond firmly or lose more credibility, because the interest rates will increase at a time when economies are struggling to pay for the pandemic. It’s a fact that hayan wanted to name recently Powell, and there is unlikely to be any popularity contest in 2022.

The author

It is the president of the NatWest Group.

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