1 00:00:02,440 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:08,360 --> 00:00:10,880 Speaker 2: I'm Stephen Carroll, and this is Here's Why, where we 3 00:00:10,920 --> 00:00:13,360 Speaker 2: take one news story and explain it in just a 4 00:00:13,400 --> 00:00:20,520 Speaker 2: few minutes with our experts here at Bloomberg. Central bankers 5 00:00:20,560 --> 00:00:23,800 Speaker 2: have good reason to celebrate. They've managed to bring inflation 6 00:00:23,880 --> 00:00:27,000 Speaker 2: in the world's major economies down close to their target, 7 00:00:27,520 --> 00:00:30,840 Speaker 2: but they're remaining cautious. It's often been said that the 8 00:00:30,920 --> 00:00:33,040 Speaker 2: last mile may be the hardest, and this is where 9 00:00:33,040 --> 00:00:35,559 Speaker 2: we are now. When you're in a dark room, you 10 00:00:35,680 --> 00:00:37,920 Speaker 2: have to be very careful in order to try to 11 00:00:37,960 --> 00:00:42,000 Speaker 2: avoid making a mistake. Ultimately, we want to get inflation 12 00:00:42,120 --> 00:00:43,680 Speaker 2: back down to our two percent target. 13 00:00:43,880 --> 00:00:46,360 Speaker 1: We're not aiming to undershoot it, and so we do 14 00:00:46,440 --> 00:00:46,960 Speaker 1: have to make. 15 00:00:46,840 --> 00:00:50,040 Speaker 2: Some judgments about what is the path ahead for inflation 16 00:00:50,400 --> 00:00:53,479 Speaker 2: in Europe and in the US. Inflation has been slowing 17 00:00:53,560 --> 00:00:57,240 Speaker 2: for most of this year, but that trend is getting bumpy, 18 00:00:57,600 --> 00:01:00,480 Speaker 2: and all of a sudden, it's less clear it'll go 19 00:01:00,520 --> 00:01:03,960 Speaker 2: from here. So here's why inflation could be a bigger 20 00:01:04,000 --> 00:01:10,320 Speaker 2: problem in twenty twenty five. Bloomberg Opinion Columbus Daniel Mass 21 00:01:10,400 --> 00:01:13,959 Speaker 2: joins me now for more. Daniel, first of all, can 22 00:01:14,040 --> 00:01:18,520 Speaker 2: we say that the twenty twenty two inflation crisis is 23 00:01:18,680 --> 00:01:19,720 Speaker 2: behind us. 24 00:01:20,240 --> 00:01:24,200 Speaker 1: Yes, well, and truly if you look at the central 25 00:01:24,280 --> 00:01:28,000 Speaker 1: bank that is first among equals. The FED has a 26 00:01:28,160 --> 00:01:32,800 Speaker 1: target of two percent inflation, an average of two percent 27 00:01:33,040 --> 00:01:39,039 Speaker 1: over time, according to an indicator called PCEE. Okay, So 28 00:01:39,280 --> 00:01:42,720 Speaker 1: in twenty twenty two, around the middle of that year, 29 00:01:43,040 --> 00:01:48,360 Speaker 1: PCEE was above seven. Okay, So you know, we've come 30 00:01:48,440 --> 00:01:53,120 Speaker 1: down a very significant way. And that is the same 31 00:01:53,360 --> 00:01:58,800 Speaker 1: in many jurisdictions that we watch. The differences where they 32 00:01:58,880 --> 00:02:04,160 Speaker 1: do exist alive nuance are set. Aside China, second largest economy, 33 00:02:04,200 --> 00:02:08,440 Speaker 1: it's in a slightly different basket. China has the opposite 34 00:02:08,440 --> 00:02:11,480 Speaker 1: problem it's been wrestling with for a while, which is 35 00:02:11,520 --> 00:02:15,160 Speaker 1: that inflation is too low. So China's operating on a 36 00:02:15,200 --> 00:02:19,840 Speaker 1: different cycle. But in most of the developed markets and 37 00:02:19,960 --> 00:02:25,160 Speaker 1: in quite a few of the emerging markets, inflation, as 38 00:02:25,240 --> 00:02:28,240 Speaker 1: manifested by the kind of language we used a couple 39 00:02:28,280 --> 00:02:30,680 Speaker 1: of years ago, is yesterday's problem. 40 00:02:31,080 --> 00:02:33,400 Speaker 2: So we are well down the hill from the peak 41 00:02:33,480 --> 00:02:36,720 Speaker 2: of inflation. But there is a bit of steckiness appearing 42 00:02:36,760 --> 00:02:40,320 Speaker 2: in some places. What elements could prove troublesome. 43 00:02:40,880 --> 00:02:46,200 Speaker 1: Look, it's not that people are suddenly seeing a surge, 44 00:02:46,600 --> 00:02:51,480 Speaker 1: you know, a return to twenty twenty two situation. The 45 00:02:51,520 --> 00:02:54,280 Speaker 1: governor of the Reserve Bank of New Zealand, fresh from 46 00:02:54,320 --> 00:02:58,200 Speaker 1: a fifty basis point cut the second in as many meetings, 47 00:02:58,639 --> 00:03:01,320 Speaker 1: was asked this question. He's like, no, no way. He 48 00:03:01,400 --> 00:03:05,639 Speaker 1: foresees nirvana. As a matter of fact. Now, you know, 49 00:03:05,800 --> 00:03:08,720 Speaker 1: one needs to be careful not to extrapolate too much. 50 00:03:08,760 --> 00:03:12,240 Speaker 1: But they were the world's first inflation targeting central bank, 51 00:03:12,320 --> 00:03:14,680 Speaker 1: and get a lot of cutos. It's part of the 52 00:03:14,720 --> 00:03:19,760 Speaker 1: monetary folklore of the post nineteen forty five era. So look, 53 00:03:20,160 --> 00:03:26,119 Speaker 1: this promising situation of inflation tamed of mission, pretty much accomplished, 54 00:03:26,160 --> 00:03:29,880 Speaker 1: but don't shout it too loudly. What's caused elements of 55 00:03:30,080 --> 00:03:33,600 Speaker 1: doubt to appear in that scenario, and that has been 56 00:03:33,639 --> 00:03:39,200 Speaker 1: the election and Donald Trump's foreshadowing of a muscular to 57 00:03:39,240 --> 00:03:46,200 Speaker 1: put it mildly, fiscal policy, deregulation and also tariffs. Now 58 00:03:46,440 --> 00:03:50,160 Speaker 1: these things are all seen as strengthening the dollar and 59 00:03:50,480 --> 00:03:56,600 Speaker 1: if anything, certainly putting a flaw under disinflation and possibly 60 00:03:56,680 --> 00:04:00,240 Speaker 1: pushing inflation up a little bit. But we'll see. So 61 00:04:00,280 --> 00:04:02,280 Speaker 1: I think a fascinating question that we're going to be 62 00:04:02,320 --> 00:04:06,080 Speaker 1: wrestling with over the next few years. Is was the 63 00:04:06,160 --> 00:04:09,400 Speaker 1: inflation surge of twenty twenty one, twenty twenty two, and 64 00:04:09,560 --> 00:04:12,640 Speaker 1: part of twenty twenty three, you know, a blip and 65 00:04:12,680 --> 00:04:15,720 Speaker 1: we go back to where we were with low inflation. 66 00:04:16,040 --> 00:04:19,919 Speaker 1: Janet Yellen's famous mystery comment or was that at the 67 00:04:19,920 --> 00:04:23,840 Speaker 1: start of something new where inflation is constrained from its 68 00:04:23,880 --> 00:04:27,120 Speaker 1: high levels but can't drop back to the levels that 69 00:04:27,160 --> 00:04:30,440 Speaker 1: it enjoyed before the pandemic. So the election sort of, 70 00:04:30,480 --> 00:04:34,360 Speaker 1: you know, injected an element of doubt in this. You know, 71 00:04:34,640 --> 00:04:38,719 Speaker 1: goldilocks could still happen, okay, but before we taste the porridge, 72 00:04:38,880 --> 00:04:42,039 Speaker 1: you know, there might be a few interesting little hiccups 73 00:04:42,080 --> 00:04:42,640 Speaker 1: along the way. 74 00:04:43,360 --> 00:04:48,320 Speaker 2: What scale of heckups should we expecting or perhaps considering 75 00:04:48,560 --> 00:04:51,080 Speaker 2: given some of those elements you laid out, things like 76 00:04:51,279 --> 00:04:53,880 Speaker 2: tariffs if you're in the US that could have pushed 77 00:04:53,920 --> 00:04:56,440 Speaker 2: up prices there, or the strong dollar that could have 78 00:04:56,480 --> 00:04:59,440 Speaker 2: an effect outside of the US. Are we talking about 79 00:04:59,480 --> 00:05:03,320 Speaker 2: inflation could bump back up to three presentesh or could 80 00:05:03,320 --> 00:05:05,240 Speaker 2: we be thinking about it potentially going higher than that? 81 00:05:05,640 --> 00:05:09,960 Speaker 1: Depends what measure you're talking about. So core PCE is 82 00:05:10,120 --> 00:05:13,479 Speaker 1: quite a bit higher than two point one. It's around 83 00:05:13,560 --> 00:05:16,919 Speaker 1: two point seven two point eight. Do I foresee it 84 00:05:17,000 --> 00:05:21,800 Speaker 1: going to something like four? No, JP Morgan. Economists were 85 00:05:21,800 --> 00:05:24,680 Speaker 1: discussing this on a recent podcast. I know you're a 86 00:05:24,720 --> 00:05:27,440 Speaker 1: fan of podcasts, so I raised this. They were talking 87 00:05:27,480 --> 00:05:30,480 Speaker 1: about whether there would be a New Testament FED or 88 00:05:30,520 --> 00:05:33,640 Speaker 1: an Old Testament fed, you know, an unforgiving FED or 89 00:05:33,680 --> 00:05:36,599 Speaker 1: a forgiving FED. Work. You can be more or less 90 00:05:36,720 --> 00:05:40,760 Speaker 1: okay with PCE between two and three, but beyond that 91 00:05:40,880 --> 00:05:43,760 Speaker 1: you start to worry. You know, the International Monetary Fund 92 00:05:43,960 --> 00:05:46,960 Speaker 1: gets mixed reviews. It's fair to say they have done 93 00:05:47,000 --> 00:05:51,120 Speaker 1: a lot of work on their economic forecasting, and according 94 00:05:51,160 --> 00:05:54,320 Speaker 1: to the chief economists of the IMF, this is almost 95 00:05:54,400 --> 00:05:58,440 Speaker 1: mission accomplished in terms of inflation. And it's been accomplished 96 00:05:58,880 --> 00:06:01,919 Speaker 1: without a global risk. Go back to the dark days 97 00:06:01,920 --> 00:06:06,120 Speaker 1: of twenty twenty two, there was a fairly common idea 98 00:06:06,200 --> 00:06:08,560 Speaker 1: around that it was going to take a recession to 99 00:06:08,680 --> 00:06:12,320 Speaker 1: ring this post COVID inflation out of the system. Well, 100 00:06:12,320 --> 00:06:15,240 Speaker 1: that hasn't happened. We do need to be prepared to 101 00:06:15,600 --> 00:06:19,160 Speaker 1: question consensus. I think we should also question, in terms 102 00:06:19,200 --> 00:06:22,880 Speaker 1: of tariffs, what actually becomes law and for how long 103 00:06:23,200 --> 00:06:26,480 Speaker 1: so Trump is foreshadowed higher tariffs on Mexico. I don't 104 00:06:26,480 --> 00:06:30,280 Speaker 1: think they're allowed under USMCA, which was the revised and 105 00:06:30,360 --> 00:06:33,960 Speaker 1: after which he called the best agreement ever. So is 106 00:06:34,000 --> 00:06:37,559 Speaker 1: he now saying it's not the best agreement ever? Let's 107 00:06:37,560 --> 00:06:39,120 Speaker 1: wait and see what actually happens. 108 00:06:39,320 --> 00:06:42,479 Speaker 2: Do central bankers need to be thinking about, perhaps, if not, 109 00:06:42,600 --> 00:06:45,839 Speaker 2: a new playbook for this sort of era, maybe adding 110 00:06:45,880 --> 00:06:48,480 Speaker 2: a few seats at the back to decide how they 111 00:06:48,520 --> 00:06:49,680 Speaker 2: handle something like. 112 00:06:49,600 --> 00:06:54,200 Speaker 1: This new playbook. I don't know. Look, I should say 113 00:06:54,240 --> 00:06:58,039 Speaker 1: central banking is always evolving. The central bank that people 114 00:06:58,400 --> 00:07:01,919 Speaker 1: most closely watch, the Federal reservers going intoards once every 115 00:07:02,040 --> 00:07:06,880 Speaker 1: five years review of its monetary policy framework. They conducted 116 00:07:06,920 --> 00:07:10,080 Speaker 1: the last one in the teeth of COVID and came 117 00:07:10,120 --> 00:07:15,480 Speaker 1: out with inflation would need to average two percent over time, 118 00:07:15,680 --> 00:07:19,080 Speaker 1: little bit of squishness. At the time, the perception was 119 00:07:19,080 --> 00:07:22,040 Speaker 1: that would allow them to reduce the economy some more. 120 00:07:22,320 --> 00:07:25,960 Speaker 1: Do they inject any nuance or wrinkle into that they've 121 00:07:26,000 --> 00:07:30,120 Speaker 1: got the opportunity to do so? They probably regret back 122 00:07:30,160 --> 00:07:33,520 Speaker 1: then introducing that extra level of flexibility that there may 123 00:07:33,560 --> 00:07:34,440 Speaker 1: be loath to say. 124 00:07:34,480 --> 00:07:34,600 Speaker 2: So. 125 00:07:35,080 --> 00:07:38,560 Speaker 1: The short answer is new playbook. I don't know. Variations 126 00:07:38,600 --> 00:07:42,600 Speaker 1: on the old one quite possibly. Look, it's an art 127 00:07:42,800 --> 00:07:48,200 Speaker 1: that's constantly evolving in response to new challenges, but whole 128 00:07:48,280 --> 00:07:51,040 Speaker 1: new playbooks don't come around every day. 129 00:07:51,200 --> 00:07:54,680 Speaker 2: Bloomberg Opinion colomist Daniel Mass thank you, and you could 130 00:07:54,720 --> 00:07:58,080 Speaker 2: read Daniel's latest writing on their subject. Trump makes it 131 00:07:58,160 --> 00:08:01,760 Speaker 2: hydro to get goldilucks just right At Bloomberg dot com, 132 00:08:01,760 --> 00:08:05,160 Speaker 2: Forward Slash Opinion for more explanations like this from our 133 00:08:05,200 --> 00:08:08,320 Speaker 2: team of twenty nine hundred journalists and analysts around the world. 134 00:08:08,440 --> 00:08:11,400 Speaker 2: Search for Quick Take on the Bloomberg website or Bloomberg 135 00:08:11,520 --> 00:08:16,160 Speaker 2: Business app. I'm Stephen Carroll. This is Here's why. I'll 136 00:08:16,160 --> 00:08:18,320 Speaker 2: be back next week with more. Thanks for listening.