Economist Lucrezia Richlin
“What we are going through is probably The most complex and dangerous economic, geopolitical and social crisis Which I happen to witness in the course of my life.” He does not utter words to describe the difficulties of the moment Lucrezia RichlinShe is an economist (she was director of research at the European Central Bank during Jean-Claude Trichet’s tenure) and an academic who has taught at some of Europe’s most prestigious universities, from the Free University of Brussels to the London Business School.
In June, inflation peaked at 8.6% in the Eurozone and 8% in Italy. How long will this consistent phenomenon last?
«Before answering this question, it should be noted that although the upward trend in prices is a global phenomenon, the rate of inflation is not the same in all countries. For example, in Japan we are just above 2.4% per year, and in China about 2.2%. High inflation mainly affects the United States, Europe and some emerging countries such as Brazil and Turkey, but for specific reasons.”
Has the revival of the price race been underestimated by central banks?
Perhaps at first there was a delay in responding, especially from the US Federal Reserve. But we must remember that even in December 2021, the long-term inflation expectations in Europe were less than 2%.”
So it suddenly exploded…
Partially, yes, at a time when the global economy was emerging from the emergency caused by the Covid virus, it launched the Russian aggressive war against Ukraine, and highlighted the growth dynamics in the prices of raw materials, and in particular ‘energy’ which is the main cause of the rise in the prices of all other commodities ».
If the Russo-Ukrainian War ends within a year, inflation may fall …
I am not optimistic. I am afraid that the conflict will continue over time and that the problems with the power supply chain will continue for a long time. The answer cannot be to revive coal-fired power plants because governments need to maintain barriers to energy transition and decarbonization.”
One of the main components of the current inflation is the rise in food prices. How much is the price increase due to drought?
“This is another long-standing problem that makes us understand how important it is to maintain aggressive energy policies aimed at reducing carbon emissions. We are seeing what climate change means in concrete terms.”
In the face of difficult-to-counter long-term trends, what can central banks do?
“The role of central banks at this point is important but given that inflation arises primarily from the supply side, monetary policy has a limited impact.”.
Are you saying that there is no point in raising interest rates?
“No, it is imperative that central banks act immediately and quickly to counteract the growth of inflation expectations in the medium and long term. Delays in deciding on more restrictive monetary policy today may require further significant rate hikes in the future.”
A higher price will have a recessive effect…
This is the huge bill we have to pay in the fight against inflation. I think that thanks to the economic slowdown, I prefer not to talk about a recession, in 2023 we will have a rate of increase in prices lower than the current rate. So at the cost of a slowdown in the economy, this phase of high inflation could end or slow as early as the second half of 2022 and from 2023.”
This will happen at very high social costs…
“Of course. And it becomes the task of governments to alleviate the difficulties especially for those segments of the population most vulnerable to rising commodity prices. Not by placing limits on price increases, which are not very effective, as with direct additions to the incomes of people who are yesterday the need for it.”
Could setting a gas price cap, as suggested by President Draghi, help?
“This is a measure intended to have a particular impact on Russia, the details of which are very complex in design and implementation. In any case, even if justified, it could involve gas rationing ».
Is the increase in public spending inevitable?
“Yes, moreover, the situation of the most fragile countries in terms of debt is particularly sensitive and solutions must be found that allow containing the public deficit and increasing the spreads on the bond yields of the most indebted countries.”
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