1 00:00:03,920 --> 00:00:06,960 Speaker 1: Hello, Stephanomics. Here the podcast that brings you the global economy. 2 00:00:07,360 --> 00:00:09,600 Speaker 1: There are plenty of people in the Bloomberg newsroom who 3 00:00:09,640 --> 00:00:12,480 Speaker 1: would tell you that one number matters more than any 4 00:00:12,520 --> 00:00:17,080 Speaker 1: other in the global economy in three and that's US inflation. 5 00:00:17,600 --> 00:00:19,759 Speaker 1: We got the latest print this week, and for at 6 00:00:19,840 --> 00:00:22,360 Speaker 1: least a few hours, the conversation was of little else 7 00:00:22,440 --> 00:00:26,000 Speaker 1: what it meant for interest rates, global markets, unemployment. But 8 00:00:26,120 --> 00:00:30,000 Speaker 1: guess what, US inflation is not the only thing that matters. 9 00:00:30,440 --> 00:00:33,200 Speaker 1: In fact, the event which might have the greatest impact 10 00:00:33,200 --> 00:00:36,000 Speaker 1: on the global economy this year may already have happened, 11 00:00:36,240 --> 00:00:40,599 Speaker 1: and that's Chinese President Seijingping's decision to reopen the Chinese 12 00:00:40,600 --> 00:00:45,920 Speaker 1: economy almost overnight short term that has sent COVID infection 13 00:00:46,040 --> 00:00:49,960 Speaker 1: rates soaring. It might even weaken the president's position, given 14 00:00:50,000 --> 00:00:52,760 Speaker 1: how much he has invested in protecting the population from 15 00:00:52,760 --> 00:00:56,600 Speaker 1: the virus. But if it leads to markedly faster Chinese 16 00:00:56,640 --> 00:00:59,680 Speaker 1: growth in the second part of this year, we also 17 00:00:59,760 --> 00:01:02,480 Speaker 1: know it will push up the price of raw materials 18 00:01:02,480 --> 00:01:05,840 Speaker 1: and energy again and really complicate the job of cutting 19 00:01:05,840 --> 00:01:10,080 Speaker 1: inflation in Europe and the US. Our chief global economist, 20 00:01:10,080 --> 00:01:13,240 Speaker 1: Tom Marlick, has run the numbers on what exactly that 21 00:01:13,319 --> 00:01:15,880 Speaker 1: might mean for the rest of us, So stick around 22 00:01:16,160 --> 00:01:19,200 Speaker 1: to hear the results. We're also going to hear from 23 00:01:19,240 --> 00:01:22,560 Speaker 1: the land of upside down Economics with a report and 24 00:01:22,680 --> 00:01:28,280 Speaker 1: conversation about Turkey. But first, a quick postcard from Argentina, 25 00:01:28,640 --> 00:01:31,679 Speaker 1: which had an inflation rate over the course of two 26 00:01:32,080 --> 00:01:36,720 Speaker 1: of just under one. That's the highest rate in the 27 00:01:36,760 --> 00:01:40,120 Speaker 1: G twenty group of economies, and it has plenty of 28 00:01:40,160 --> 00:01:45,319 Speaker 1: awkward consequences for the economy and for Argentina's people, as 29 00:01:45,319 --> 00:01:49,800 Speaker 1: our Economy and Government reporter Patrick Gillespie describes, for tourists, 30 00:01:49,840 --> 00:01:56,480 Speaker 1: it's also made changing money quite an exercise. Yeah, I'm 31 00:01:56,600 --> 00:01:59,760 Speaker 1: standing at the entrance of a Western Union branch and 32 00:02:00,000 --> 00:02:04,160 Speaker 1: Central Buenos Aires, Argentina. The company provides a popular currency 33 00:02:04,200 --> 00:02:08,600 Speaker 1: exchange service, and at twelve pm on a regular summer Thursday, 34 00:02:09,040 --> 00:02:13,040 Speaker 1: the line is out the door. Inside the queue is 35 00:02:13,080 --> 00:02:17,919 Speaker 1: like United Nations of buzzing tourists speaking German, French, Portuguese 36 00:02:18,240 --> 00:02:22,119 Speaker 1: and English while they're waiting to exchange cash. It might 37 00:02:22,240 --> 00:02:26,040 Speaker 1: look all normal until you take a peek into people's bags, 38 00:02:26,080 --> 00:02:30,000 Speaker 1: from fanny packs to backpacks and big purses. Everyone here 39 00:02:30,120 --> 00:02:33,320 Speaker 1: is walking out with loads of pacil bills in cash. 40 00:02:33,520 --> 00:02:35,440 Speaker 1: The first time I did it kind of fels like 41 00:02:35,480 --> 00:02:37,679 Speaker 1: I'm I'm rubbing a bank or so that was some 42 00:02:37,840 --> 00:02:40,400 Speaker 1: weird When when do you have so much money in 43 00:02:40,400 --> 00:02:43,880 Speaker 1: your hands? That was Stefan tavern If, twenty eight year 44 00:02:43,880 --> 00:02:47,320 Speaker 1: old tourist from the Netherlands. He's fetching money to pay 45 00:02:47,360 --> 00:02:50,119 Speaker 1: for his next flight with a pile of cash as 46 00:02:50,160 --> 00:02:53,800 Speaker 1: thick as a brick. He's much more experienced now, but 47 00:02:53,919 --> 00:02:56,480 Speaker 1: having so much cash on hand still leaves him a 48 00:02:56,480 --> 00:03:00,399 Speaker 1: little unsettled. And the other thing based having so much 49 00:03:00,680 --> 00:03:03,880 Speaker 1: so many notes right, Like, it's not it's basically thousand 50 00:03:03,919 --> 00:03:06,560 Speaker 1: is the highest one you can get. And I just 51 00:03:06,639 --> 00:03:09,440 Speaker 1: picked up, like what a couple hundred dollars and our 52 00:03:09,440 --> 00:03:12,720 Speaker 1: euros and that's it's not just I love money, um 53 00:03:13,000 --> 00:03:16,920 Speaker 1: just Argentina is a complex economy, with at least a 54 00:03:16,960 --> 00:03:20,480 Speaker 1: dozen different exchange rates and a labyornth of currency controls. 55 00:03:21,040 --> 00:03:24,480 Speaker 1: Those restrictions have created a growing gap between the official 56 00:03:24,480 --> 00:03:28,520 Speaker 1: exchange rate and all of the other informal exchange rates. 57 00:03:28,560 --> 00:03:30,480 Speaker 1: So if you go to a bank a t M 58 00:03:30,560 --> 00:03:33,639 Speaker 1: in Buenos Aires, for example, one dollar would get you 59 00:03:33,720 --> 00:03:36,440 Speaker 1: about a hundred and eighty paces at the official rate, 60 00:03:37,520 --> 00:03:39,840 Speaker 1: but if you go to Western Union you get about 61 00:03:39,920 --> 00:03:43,000 Speaker 1: three hundred and thirty five paces per dollar because the 62 00:03:43,080 --> 00:03:46,840 Speaker 1: company offers a parallel exchange rate used in financial markets. 63 00:03:47,560 --> 00:03:50,040 Speaker 1: That's nearly double the amount of money you get going 64 00:03:50,120 --> 00:03:55,960 Speaker 1: through the traditional banking system. So how did the paco 65 00:03:56,080 --> 00:04:05,000 Speaker 1: get here? Well, the answer is threefold. First, Argentina's inflation 66 00:04:05,120 --> 00:04:10,160 Speaker 1: rate is nearing one of the highest in the world. Second, 67 00:04:10,480 --> 00:04:14,400 Speaker 1: the government intentionally keeps the official exchange rate low to 68 00:04:14,520 --> 00:04:18,880 Speaker 1: protect its razor thin currency reserves. This helps to prevent 69 00:04:19,040 --> 00:04:22,720 Speaker 1: a major currency crisis and evaluation, which is something the 70 00:04:22,760 --> 00:04:25,960 Speaker 1: government wants to avoid at all costs, at least until 71 00:04:26,160 --> 00:04:29,840 Speaker 1: this year's presidential election in October. The last government that 72 00:04:29,880 --> 00:04:32,719 Speaker 1: allowed a major run on the pace so got voted 73 00:04:32,760 --> 00:04:37,320 Speaker 1: out after just one term in office. And finally, the 74 00:04:37,480 --> 00:04:41,440 Speaker 1: largest cash bill in Argentina is only one thousand paso's 75 00:04:41,800 --> 00:04:45,680 Speaker 1: worth about three dollars today. The government refuses to make 76 00:04:45,960 --> 00:04:49,280 Speaker 1: larger denomination bills and says it wants to focus on 77 00:04:49,400 --> 00:04:53,680 Speaker 1: digital payments, but critics say that's just an excuse. They 78 00:04:53,839 --> 00:04:56,040 Speaker 1: argued that the central Bank doesn't want to print a 79 00:04:56,160 --> 00:04:59,720 Speaker 1: larger denomination bill because it would be an admission that 80 00:04:59,800 --> 00:05:07,040 Speaker 1: they failed to contain inflation. The peril of this currency 81 00:05:07,120 --> 00:05:10,480 Speaker 1: crisis has made Argentina both a tourist haven and a 82 00:05:10,560 --> 00:05:14,800 Speaker 1: laughing stock. At a football match last year, Brazilian fans 83 00:05:15,040 --> 00:05:18,560 Speaker 1: tore up pays so cash bills to mock their Argentine 84 00:05:18,600 --> 00:05:22,480 Speaker 1: opponents as their team cruise to victory, and a TikTok 85 00:05:22,640 --> 00:05:26,240 Speaker 1: video went viral in which a Dutch influencer with the 86 00:05:26,360 --> 00:05:31,799 Speaker 1: handle travel Tom Tom added insult to Argentina's injury. Hey, Europeans, 87 00:05:31,839 --> 00:05:35,200 Speaker 1: when you think your inflation is bad, this is Argentina 88 00:05:35,360 --> 00:05:40,159 Speaker 1: seventy inflation. This is the biggest bill in Argentina. It's 89 00:05:40,200 --> 00:05:44,800 Speaker 1: one thousand vessels and they're worth it only three dollars. 90 00:05:45,080 --> 00:05:51,080 Speaker 1: I'm so sorry Argentina. Of course, on the ground, it's 91 00:05:51,120 --> 00:05:54,880 Speaker 1: anything but funny. The number of people living in poverty 92 00:05:54,880 --> 00:06:00,640 Speaker 1: and Argentina spiked to nearly from just five years ago. 93 00:06:01,480 --> 00:06:05,360 Speaker 1: A consulting firm called the Agnostico Politico counted about ten 94 00:06:05,480 --> 00:06:09,880 Speaker 1: thousand protests in Argentina last year. That's the highest number 95 00:06:09,960 --> 00:06:17,160 Speaker 1: in more than a decade. Inflation, galloping at such a 96 00:06:17,320 --> 00:06:21,320 Speaker 1: fast pace has wiped out paychecks for middle class Argentine's 97 00:06:21,880 --> 00:06:25,760 Speaker 1: Lucan Palabosino is a nurse working two jobs who had 98 00:06:25,839 --> 00:06:28,320 Speaker 1: to move back in with her father so she could 99 00:06:28,360 --> 00:06:34,080 Speaker 1: save money for her son. I can barely save money. 100 00:06:34,600 --> 00:06:39,359 Speaker 1: It's hard. Everything is so expensive. A pair of shoes 101 00:06:39,440 --> 00:06:42,520 Speaker 1: is forty paces, and those nurses the movement we make 102 00:06:42,680 --> 00:06:44,640 Speaker 1: is a hundred and twenty thousand or a hundred and 103 00:06:44,760 --> 00:06:47,560 Speaker 1: thirty thousand paces or a month, so a pair of 104 00:06:47,640 --> 00:06:56,920 Speaker 1: shoes is half my salary. Looming over the horizon is 105 00:06:56,960 --> 00:07:00,960 Speaker 1: this year's presidential election. A new press acident could lift 106 00:07:01,040 --> 00:07:04,040 Speaker 1: all the currency controls so that there's no gap between 107 00:07:04,200 --> 00:07:09,520 Speaker 1: exchange rates. Still, it's not clear the official paso rate 108 00:07:09,800 --> 00:07:14,400 Speaker 1: will be getting stable anytime soon. Economists surveyed by Argentina's 109 00:07:14,400 --> 00:07:17,880 Speaker 1: Central Bank see one dollar being worth six hundred and 110 00:07:17,920 --> 00:07:21,040 Speaker 1: twenty four pesos by the end of two thousand four. 111 00:07:21,520 --> 00:07:24,400 Speaker 1: That's versus the official rate now of a hundred and 112 00:07:24,520 --> 00:07:29,960 Speaker 1: eighty pasos per dollar. Many believe a major currency devaluation 113 00:07:30,200 --> 00:07:34,239 Speaker 1: is inevitable at some point, so no matter who wins 114 00:07:34,320 --> 00:07:37,280 Speaker 1: the presidential race, you can still bet that cash will 115 00:07:37,320 --> 00:07:41,160 Speaker 1: be king in Argentina and you will always find exchange 116 00:07:41,200 --> 00:07:46,040 Speaker 1: houses shouting cambio or exchange on the streets of Buenos Aires. 117 00:07:50,760 --> 00:08:08,640 Speaker 1: In Buenos Aires, I'm Patrick Gillespie for Bloomberg News. While 118 00:08:08,640 --> 00:08:11,560 Speaker 1: I happen to know that quite a few economic students 119 00:08:11,680 --> 00:08:14,120 Speaker 1: listen to this podcast, God help them. In fact, my 120 00:08:14,160 --> 00:08:16,480 Speaker 1: teenage son has even been encouraged to listen, though he 121 00:08:16,560 --> 00:08:19,400 Speaker 1: seems to have resisted so far. And if they take 122 00:08:19,520 --> 00:08:22,920 Speaker 1: monetary policy one oh one, they'll be taught that if 123 00:08:22,960 --> 00:08:25,680 Speaker 1: a country has a problem with inflation, it needs to 124 00:08:25,840 --> 00:08:29,720 Speaker 1: raise interest rates increase the cost of money. Now the 125 00:08:29,840 --> 00:08:32,600 Speaker 1: Argentine Central Bank has done that. I mean, it's true. 126 00:08:32,640 --> 00:08:36,200 Speaker 1: With the presidential election coming up in October, the authorities 127 00:08:36,240 --> 00:08:39,000 Speaker 1: are a bit less keen to raise rates. But the 128 00:08:39,080 --> 00:08:43,920 Speaker 1: official interest rate is already at seventy. Now if we 129 00:08:43,960 --> 00:08:47,960 Speaker 1: go to Turkey, inflations also in the high double digits there, 130 00:08:48,320 --> 00:08:51,880 Speaker 1: but the official interest rate is only nine and the 131 00:08:52,000 --> 00:08:57,599 Speaker 1: central bank has cut rates significantly in one and two. 132 00:08:58,600 --> 00:09:02,280 Speaker 1: This reflects not the economics of textbooks, but the economics 133 00:09:02,600 --> 00:09:06,640 Speaker 1: of President Argon. Central bank governors who have disagreed with 134 00:09:06,720 --> 00:09:09,679 Speaker 1: this policy over the past few years haven't lasted very 135 00:09:09,760 --> 00:09:13,200 Speaker 1: long in the job. Or Bloomberg's economist covering Turkey used 136 00:09:13,200 --> 00:09:15,240 Speaker 1: to work at the central bank. In a minute, I'll 137 00:09:15,280 --> 00:09:17,280 Speaker 1: ask her what it's like to be tearing up the 138 00:09:17,360 --> 00:09:21,000 Speaker 1: rules of economic policy on a daily basis. But first 139 00:09:21,400 --> 00:09:23,360 Speaker 1: a taste of what it's like to be in Turkey 140 00:09:23,760 --> 00:09:31,600 Speaker 1: from our economy and government reporter Beryl Ackman, each other 141 00:09:32,600 --> 00:09:37,760 Speaker 1: graduling inflation will below from now on. Therefore minimum wage 142 00:09:37,800 --> 00:09:40,240 Speaker 1: phrases a number that will easily help people get by. 143 00:09:40,559 --> 00:09:43,720 Speaker 1: We have solved inflation. That was a Turkish finance minister 144 00:09:44,640 --> 00:09:49,440 Speaker 1: Nebati in an interior last week. He celebrated inflatitions downward 145 00:09:49,480 --> 00:09:52,559 Speaker 1: trend and said as government had solved the fastest go 146 00:09:52,640 --> 00:09:57,080 Speaker 1: out and prices in over two decades. Trouble is, inflation 147 00:09:57,200 --> 00:10:01,280 Speaker 1: is still running around sixty Compare that to the U 148 00:10:01,480 --> 00:10:04,640 Speaker 1: S and the EU, where consumers are grumbling about inflation 149 00:10:04,800 --> 00:10:09,360 Speaker 1: that's in the high single digits. I am Billy Lackman, 150 00:10:09,520 --> 00:10:13,360 Speaker 1: an economy reporter for Bloomberk based in Turkey, where basic 151 00:10:13,440 --> 00:10:17,480 Speaker 1: kitchen stables like milk or eggs have become luxuries, and 152 00:10:17,559 --> 00:10:20,360 Speaker 1: where prices have become so unanchored that it's hard to 153 00:10:20,440 --> 00:10:24,679 Speaker 1: tell what's expensive anymore and what the normal prices. On 154 00:10:24,800 --> 00:10:27,439 Speaker 1: a recent Sunday, I want to get coffee at the 155 00:10:27,520 --> 00:10:30,360 Speaker 1: nearest Starbucks to my house in a Turkish capital, Anchara. 156 00:10:32,679 --> 00:10:36,319 Speaker 1: Because authorizing electricity costs, we have stopped using a refrigerator. 157 00:10:36,559 --> 00:10:39,040 Speaker 1: I will see a two thousand, three thousand bluer electors 158 00:10:39,120 --> 00:10:41,040 Speaker 1: to bill every month. That is the voice of a 159 00:10:41,080 --> 00:10:43,360 Speaker 1: flower shop merchant who has asked me to omit his 160 00:10:43,440 --> 00:10:46,679 Speaker 1: name to avoid any trouble at his workplace or with authorities. 161 00:10:47,160 --> 00:10:49,480 Speaker 1: He told me earlier that it is landlord increased. The 162 00:10:49,520 --> 00:10:52,839 Speaker 1: workplace is read by almost two hundred percent. I chat 163 00:10:52,920 --> 00:10:55,880 Speaker 1: a bit with him, and I comment that despite high inflation, 164 00:10:56,080 --> 00:10:59,280 Speaker 1: it looks like business as usual on the outside. Cafes 165 00:10:59,320 --> 00:11:02,640 Speaker 1: and restaurants are filled, Shopping malls are crowded. For many 166 00:11:02,720 --> 00:11:05,560 Speaker 1: Turkey watchers, that is a strange part that life feels 167 00:11:05,640 --> 00:11:09,679 Speaker 1: normal in many ways. Pointing at the coffee cop I'm holding, 168 00:11:10,000 --> 00:11:12,520 Speaker 1: he tells me that people need to socialize and have fun. 169 00:11:12,800 --> 00:11:18,040 Speaker 1: Inflation or not, They say, Starbucks are always crowded. What's 170 00:11:18,080 --> 00:11:21,240 Speaker 1: the guy supposed to do? One would go crazy. It's 171 00:11:21,280 --> 00:11:25,440 Speaker 1: a mortal world. Inflation is a problem pretty much everywhere 172 00:11:25,480 --> 00:11:28,760 Speaker 1: around the globe, but Turkey had double digit inflation even 173 00:11:28,840 --> 00:11:31,959 Speaker 1: before the war began. The situation in Ukraine just made 174 00:11:32,000 --> 00:11:37,520 Speaker 1: things way worse economic orthodox He says that when inflation spikes, 175 00:11:37,760 --> 00:11:40,720 Speaker 1: central banks should raise interest rates to cool the economy, 176 00:11:41,080 --> 00:11:46,400 Speaker 1: reduced demand for goods and services and lower prices. But 177 00:11:46,559 --> 00:11:49,280 Speaker 1: as other top bankers rushed through as their interest rates, 178 00:11:49,559 --> 00:11:53,319 Speaker 1: Turkey did the opposite. From August through November last year, 179 00:11:53,760 --> 00:11:57,440 Speaker 1: the Turkish Central Bank cut rates. The benchmark rate now 180 00:11:57,559 --> 00:12:01,000 Speaker 1: stands at nine percent when that I stood for inflation, 181 00:12:01,200 --> 00:12:04,439 Speaker 1: which is six. This makes Turkey have one of the 182 00:12:04,559 --> 00:12:09,679 Speaker 1: deepest negative real rates, meaning money is extremely cheap. President 183 00:12:09,760 --> 00:12:13,120 Speaker 1: rejeb Type Ardon, the country's long serving leader, has a 184 00:12:13,200 --> 00:12:17,360 Speaker 1: big hand in Turkey's policy. FI is that the indictmate. 185 00:12:19,559 --> 00:12:21,480 Speaker 1: I told you we would lower the interest rates to 186 00:12:21,559 --> 00:12:24,679 Speaker 1: single digits, and we did. It will continue like this 187 00:12:24,840 --> 00:12:27,599 Speaker 1: from now on. They say. Inflation is like this and 188 00:12:27,760 --> 00:12:32,000 Speaker 1: that don't worry that too will fall. President Ardon is 189 00:12:32,200 --> 00:12:35,319 Speaker 1: hardly alone and preferring to keep borrowing costs law. But 190 00:12:35,440 --> 00:12:38,840 Speaker 1: the president argues that lower rates will bring down inflation. 191 00:12:39,440 --> 00:12:41,880 Speaker 1: We have yet to see this theory validated in real life, 192 00:12:42,679 --> 00:12:45,400 Speaker 1: and while most nations are trying to slow their economy 193 00:12:45,480 --> 00:12:48,400 Speaker 1: is a bit too cool inflation. Ardn is boosting spending 194 00:12:48,480 --> 00:12:51,840 Speaker 1: and raising pay for minimum wage earners. It's been dubbed 195 00:12:51,920 --> 00:12:58,720 Speaker 1: the Turkey economy model and Who's killer will become one 196 00:12:58,760 --> 00:13:02,559 Speaker 1: of the fastest glowing trees in the world. For now, 197 00:13:02,720 --> 00:13:06,840 Speaker 1: Turkey citizens are hurting. Farouk, who owns a corner store 198 00:13:06,960 --> 00:13:09,920 Speaker 1: in a quiet street near Anchor a central life square, 199 00:13:10,559 --> 00:13:18,160 Speaker 1: says dairy has become unaffordable. Essential food items, for example, 200 00:13:18,280 --> 00:13:22,760 Speaker 1: daily products have become incredibly expensive, extremely expensive. We compromise 201 00:13:22,800 --> 00:13:25,920 Speaker 1: from ourselves. Our preferences have shifted and we tried to 202 00:13:26,040 --> 00:13:28,640 Speaker 1: make some of them ourselves. Because the money we are 203 00:13:28,679 --> 00:13:31,600 Speaker 1: and does not compensate for our purchasing power. We try 204 00:13:31,640 --> 00:13:38,080 Speaker 1: to say more. Many economists think Turkey needs an urgent 205 00:13:38,200 --> 00:13:42,280 Speaker 1: policy you turn, and that the current policy format is unsustainable. 206 00:13:43,240 --> 00:13:46,559 Speaker 1: Turkey's elections are expected to take place in about five months, 207 00:13:47,080 --> 00:13:50,280 Speaker 1: and that's why President Ardon is fixated on economic growth. 208 00:13:50,840 --> 00:13:53,440 Speaker 1: But Ardon and his UG party are facing a serious 209 00:13:53,559 --> 00:13:57,400 Speaker 1: challenge from a six party opposition alliance and growing discontent 210 00:13:57,520 --> 00:14:00,640 Speaker 1: over high living costs. So it is is posed, I 211 00:14:00,720 --> 00:14:03,120 Speaker 1: said to suggest Ardon has a high chance of getting 212 00:14:03,160 --> 00:14:07,400 Speaker 1: re elected, but this party may see power. Turkey's finance 213 00:14:07,480 --> 00:14:10,040 Speaker 1: Minister said the nation will keep its policy of low 214 00:14:10,120 --> 00:14:13,840 Speaker 1: interest rates regardless of what happens in the election. Meantime, 215 00:14:13,920 --> 00:14:17,000 Speaker 1: the Turkish people are desperate for something, anything, to ease 216 00:14:17,080 --> 00:14:21,080 Speaker 1: the skyrocketing prices. Arton, who works at a stationary shop 217 00:14:21,160 --> 00:14:26,720 Speaker 1: in Ankara, is struggling to provide for his family. We 218 00:14:26,800 --> 00:14:29,720 Speaker 1: cannot get by work with minimum wage to look after 219 00:14:29,840 --> 00:14:32,920 Speaker 1: two kids and look after the household pay round. It's impossible. 220 00:14:33,440 --> 00:14:36,240 Speaker 1: What we are doing is just pretty I asked Arton 221 00:14:36,360 --> 00:14:38,960 Speaker 1: what items he has the most trouble paying for. The 222 00:14:39,120 --> 00:14:45,320 Speaker 1: list keeps growing. London's and said to them, first food, 223 00:14:45,480 --> 00:14:48,200 Speaker 1: then clothing. Before we used to go out to dinner 224 00:14:48,400 --> 00:14:51,560 Speaker 1: once or twice and long. Now it's maybe every six months, 225 00:14:51,920 --> 00:15:09,480 Speaker 1: and it's even rare. I'm Berry Lackman for Bloomberg News. Yeah, so, 226 00:15:09,640 --> 00:15:11,960 Speaker 1: as promised, we will dig into the upside down world 227 00:15:12,040 --> 00:15:15,200 Speaker 1: of Turkish economic policies now and broaden things out to 228 00:15:15,280 --> 00:15:18,480 Speaker 1: talk about what's going to happen to inflation everywhere. With 229 00:15:18,640 --> 00:15:23,440 Speaker 1: Bloomberg's Turkey economist Selva Besiki joining from Anchora, and our 230 00:15:23,480 --> 00:15:26,520 Speaker 1: chief global economist Tom Marlick, who's with me here this 231 00:15:26,680 --> 00:15:30,480 Speaker 1: week in New York. Welcome both of you, Silva, thank 232 00:15:30,560 --> 00:15:33,320 Speaker 1: you so much. You worked for several years at the 233 00:15:33,360 --> 00:15:36,880 Speaker 1: Turkish Central Bank before we helped you to escape. We 234 00:15:37,040 --> 00:15:39,280 Speaker 1: like to think, just sort of from a personal note, 235 00:15:39,400 --> 00:15:43,920 Speaker 1: is it difficult for officials at the central bank to 236 00:15:44,240 --> 00:15:47,480 Speaker 1: to stick with these unorthodox policies? Do you think? Yes? 237 00:15:47,560 --> 00:15:50,160 Speaker 1: And no? There's still very good technocrats at the bank 238 00:15:50,200 --> 00:15:54,080 Speaker 1: who produced analysis based on orthodox economic views, but the 239 00:15:54,200 --> 00:15:57,960 Speaker 1: monetary policy committee caters to the demands of the political leadership. 240 00:15:58,480 --> 00:16:01,200 Speaker 1: The law interest rate policy, of course comes at the 241 00:16:01,280 --> 00:16:04,960 Speaker 1: cost of weeklyra and high inflation, and the bank has 242 00:16:05,000 --> 00:16:08,360 Speaker 1: to resort to all these alternative tools to lessen the 243 00:16:08,440 --> 00:16:12,360 Speaker 1: negative feedback on both. That only works partially and pushes 244 00:16:12,440 --> 00:16:15,720 Speaker 1: the economy into over regulation. And I guess the question 245 00:16:15,800 --> 00:16:18,200 Speaker 1: that lots of people ask is why there hasn't been 246 00:16:19,040 --> 00:16:23,680 Speaker 1: a bigger crisis in Turkey with them following these policies 247 00:16:23,800 --> 00:16:26,120 Speaker 1: now for several years. People, you know, things are tough 248 00:16:26,200 --> 00:16:28,760 Speaker 1: in Turkey. I mean, we've we've heard that, but people 249 00:16:28,880 --> 00:16:33,160 Speaker 1: have been expecting that to be a tipping point, a 250 00:16:33,200 --> 00:16:36,840 Speaker 1: sort of moment of truth just doesn't seem to come. Yeah, 251 00:16:37,480 --> 00:16:40,920 Speaker 1: especially when we think of the very high external financing 252 00:16:41,000 --> 00:16:43,600 Speaker 1: needs of the economy. I'll just give you one number 253 00:16:43,680 --> 00:16:46,120 Speaker 1: to illustrate. The external debt that is due within a 254 00:16:46,240 --> 00:16:50,000 Speaker 1: year accounts for the fifth of GDP, and the resource 255 00:16:50,120 --> 00:16:53,120 Speaker 1: coverage of this death is less than six So, as 256 00:16:53,200 --> 00:16:57,760 Speaker 1: you said, what is stopping this crisis from coming? Two things. 257 00:16:58,200 --> 00:17:03,600 Speaker 1: The central Bank has been in travening ah installed interventions 258 00:17:03,640 --> 00:17:08,000 Speaker 1: into currency markets, which we calculate to be at around 259 00:17:08,160 --> 00:17:12,400 Speaker 1: a hundred billion US dollars generated through October last year. 260 00:17:13,000 --> 00:17:15,880 Speaker 1: This in itself, of course, as the fragilities and takes 261 00:17:15,960 --> 00:17:19,280 Speaker 1: the net reserves into even deeper negatives. There's also a 262 00:17:19,400 --> 00:17:23,600 Speaker 1: second point, is this money flows, the mystery money flows 263 00:17:23,680 --> 00:17:27,360 Speaker 1: into the country under net errors and emissions. Now these 264 00:17:27,440 --> 00:17:32,320 Speaker 1: are flows that normally would be small statistical discrepancies under 265 00:17:32,359 --> 00:17:35,560 Speaker 1: the balance of payments, but for Turkey they are at 266 00:17:35,600 --> 00:17:39,239 Speaker 1: twenty two billion U S dollars. In other words, they 267 00:17:39,400 --> 00:17:42,840 Speaker 1: financed about half all of the current account deficit. Um. 268 00:17:43,000 --> 00:17:47,080 Speaker 1: The central Bank thinks it's currency influence from deposits accounts 269 00:17:47,400 --> 00:17:51,400 Speaker 1: held abroad. A more likely explanation, however, is offered even 270 00:17:51,440 --> 00:17:55,040 Speaker 1: by the Minister of Finance. Actually, um cash flows from Russia. 271 00:17:56,280 --> 00:17:58,560 Speaker 1: So just to sort of pick that a little bit, 272 00:17:58,640 --> 00:18:01,040 Speaker 1: the reason why you'd expect Turkey to have a crisis 273 00:18:01,560 --> 00:18:04,040 Speaker 1: is it's dependent on borrowing from the rest of the 274 00:18:04,080 --> 00:18:08,920 Speaker 1: world to cover the gap in its external balance, and 275 00:18:09,960 --> 00:18:13,240 Speaker 1: the central bank has been sort of propping up the currency, 276 00:18:13,680 --> 00:18:18,760 Speaker 1: spending lots of foreign reserves on doing that, and despite 277 00:18:19,280 --> 00:18:21,920 Speaker 1: and it doesn't have enough of those reserves. But somehow 278 00:18:22,080 --> 00:18:25,119 Speaker 1: there's some sort of secret money coming into the country 279 00:18:25,160 --> 00:18:28,800 Speaker 1: which makes the numbers add up. Is that broadly what's happened. Yeah, 280 00:18:29,000 --> 00:18:32,040 Speaker 1: so the secret money coming in is definitely you know, 281 00:18:32,280 --> 00:18:36,160 Speaker 1: most of it is uh cash flows from Russia. There's 282 00:18:36,240 --> 00:18:39,560 Speaker 1: this other factor to consider them. The central banks reserves 283 00:18:39,680 --> 00:18:42,960 Speaker 1: are in negatives, so how do they even intervene? Very 284 00:18:43,200 --> 00:18:46,680 Speaker 1: very valid point um. The central bank has enhanced its 285 00:18:46,760 --> 00:18:50,000 Speaker 1: sources of reserves since the beginning of last year. They 286 00:18:50,040 --> 00:18:54,639 Speaker 1: are now tapping into um foreign currency revenues of exporters. 287 00:18:55,119 --> 00:18:58,840 Speaker 1: You have to convert of your revenues through the central 288 00:18:58,880 --> 00:19:01,520 Speaker 1: bank and give the all the effects to the bank. 289 00:19:01,880 --> 00:19:04,080 Speaker 1: So the sort of creative bookkeeping and also a lot 290 00:19:04,119 --> 00:19:08,280 Speaker 1: of into sort of forcing the hands of exporters and 291 00:19:08,359 --> 00:19:10,840 Speaker 1: taking some of the money they're earning abroad. They're lucky 292 00:19:10,920 --> 00:19:12,480 Speaker 1: in a sense that You've got quite a lot of 293 00:19:12,600 --> 00:19:17,480 Speaker 1: Russians who are looking to shelter money from sanctions. Absolutely, 294 00:19:17,680 --> 00:19:20,920 Speaker 1: and there's also the other factors. For a couple of 295 00:19:21,040 --> 00:19:25,600 Speaker 1: years now, the real estate market has been quite um 296 00:19:26,960 --> 00:19:30,760 Speaker 1: vibrant with foreign investors coming in, and that has been 297 00:19:31,040 --> 00:19:35,399 Speaker 1: one major area for the Russians to come and claim 298 00:19:35,680 --> 00:19:39,720 Speaker 1: residency here um and perhaps even apply for citizenship through 299 00:19:40,359 --> 00:19:46,000 Speaker 1: property requirement. UM. It used to be that Turkey's southern neighbors, 300 00:19:46,080 --> 00:19:50,520 Speaker 1: so Iran and Iraq nationals used to spare head the 301 00:19:50,880 --> 00:19:55,200 Speaker 1: number one investors in the property market, but since the 302 00:19:55,320 --> 00:19:59,720 Speaker 1: conflict in or the war in Ukraine, now that number 303 00:19:59,760 --> 00:20:02,600 Speaker 1: one position is held by Russians. And you have a 304 00:20:02,680 --> 00:20:05,200 Speaker 1: very distinguished career as an economist, and I guess we 305 00:20:05,240 --> 00:20:08,520 Speaker 1: wouldn't have expected to be talking about mystery flows and 306 00:20:08,960 --> 00:20:11,840 Speaker 1: the geopolitics of money coming in from Russia. I mean, 307 00:20:11,880 --> 00:20:16,840 Speaker 1: there's an economist sitting in Turkey. You know what, what 308 00:20:16,960 --> 00:20:18,280 Speaker 1: do you think is going to happen? Do you think 309 00:20:18,320 --> 00:20:22,320 Speaker 1: there'll be a reversal in these policies after the election 310 00:20:22,480 --> 00:20:26,560 Speaker 1: this year? So, I mean, for the economic students who 311 00:20:26,600 --> 00:20:30,240 Speaker 1: are listening, we know that fighting inflation, um, the interest 312 00:20:30,320 --> 00:20:32,320 Speaker 1: rate is the main course, and all the other policies 313 00:20:32,359 --> 00:20:35,479 Speaker 1: are just side dishes without the anchor from the policy rate. 314 00:20:35,480 --> 00:20:38,000 Speaker 1: There's only so much we can expect from these alternative 315 00:20:38,040 --> 00:20:40,960 Speaker 1: tools that the central bank currently seems to be resorting too. 316 00:20:41,640 --> 00:20:46,240 Speaker 1: So yeah, even that's so called Turkey economy model was 317 00:20:46,240 --> 00:20:51,280 Speaker 1: supposed to boost the economy on four goals UM investments, 318 00:20:51,400 --> 00:20:57,080 Speaker 1: high exports, currents to councer plus and UH strongerly round 319 00:20:57,800 --> 00:21:01,080 Speaker 1: lower inflation. It has failed on all four of these 320 00:21:01,160 --> 00:21:03,840 Speaker 1: goals in the year that it's been it's been applied. 321 00:21:04,600 --> 00:21:08,200 Speaker 1: The central branks reserves are below standard safety levels. There 322 00:21:08,280 --> 00:21:11,800 Speaker 1: seems to be room for interventions until May this year. Um. 323 00:21:12,160 --> 00:21:15,520 Speaker 1: That is probably one of the reasons why the current 324 00:21:15,600 --> 00:21:19,640 Speaker 1: political leadership is considering pulling up elections from June to May. 325 00:21:20,640 --> 00:21:25,119 Speaker 1: After that, policymakers could either continue on this road with 326 00:21:25,359 --> 00:21:29,200 Speaker 1: capital restrictions or they will have to do a policy versal. 327 00:21:29,280 --> 00:21:31,560 Speaker 1: As you say, we see the second option as a 328 00:21:31,640 --> 00:21:34,520 Speaker 1: more likely outcome at the moment, regardless of the outcome 329 00:21:34,520 --> 00:21:37,800 Speaker 1: of the elections. And just briefly, I mean, what do 330 00:21:37,880 --> 00:21:39,760 Speaker 1: you think the economy is going to look like in 331 00:21:39,880 --> 00:21:42,960 Speaker 1: a few years time. What's the long term impact of 332 00:21:43,160 --> 00:21:47,520 Speaker 1: this period of unorthodox policy going to be well, whoever 333 00:21:48,040 --> 00:21:50,720 Speaker 1: is going to be in charge of the economic situation 334 00:21:50,960 --> 00:21:54,160 Speaker 1: has the type time ahead. Um, it's a really tight 335 00:21:54,320 --> 00:21:58,040 Speaker 1: rope walking kind of situation. UM. As you said, Turkey, 336 00:21:58,080 --> 00:22:02,960 Speaker 1: isn't that energy important usually run as a current account deficit, 337 00:22:03,400 --> 00:22:06,040 Speaker 1: So getting put forward investness is really going to be 338 00:22:06,119 --> 00:22:09,200 Speaker 1: critical and that requires a little bit of more long 339 00:22:09,359 --> 00:22:15,359 Speaker 1: term looking rebuilding the institutional terror, which is really going 340 00:22:15,440 --> 00:22:18,480 Speaker 1: to take a long time. Silva, Thank you so much, 341 00:22:18,680 --> 00:22:22,600 Speaker 1: Tom Marlick. Just broadening this out, We've had two pieces 342 00:22:23,760 --> 00:22:27,320 Speaker 1: from countries that have got pretty much the worst of 343 00:22:27,400 --> 00:22:31,359 Speaker 1: the global inflation problem at the moment, Argentina and Turkey. UM. 344 00:22:31,680 --> 00:22:36,080 Speaker 1: Closer to home US Europe, inflation does seem to be 345 00:22:36,160 --> 00:22:38,600 Speaker 1: coming down, but of course a critical question is how 346 00:22:38,760 --> 00:22:41,160 Speaker 1: fast does it come down and where does that leave 347 00:22:41,640 --> 00:22:44,920 Speaker 1: policies for central banks and interest rates next year. What 348 00:22:45,320 --> 00:22:49,919 Speaker 1: are you currently thinking so globally, Stephanie, We think inflation 349 00:22:50,119 --> 00:22:54,240 Speaker 1: peaked around ten percent in the third quarter of two, 350 00:22:55,080 --> 00:22:58,040 Speaker 1: and by the end of three we think he will 351 00:22:58,080 --> 00:23:01,840 Speaker 1: have come down to around five The sun. Now, of course, 352 00:23:01,920 --> 00:23:05,159 Speaker 1: that global average is being skewed up by some of 353 00:23:05,240 --> 00:23:09,480 Speaker 1: the countries. You've just been discussing countries like Turkey and Argentina, 354 00:23:09,880 --> 00:23:12,280 Speaker 1: which don't account for a big share of the global economy, 355 00:23:12,640 --> 00:23:15,840 Speaker 1: but where inflation is just so sky high that it's 356 00:23:15,920 --> 00:23:19,120 Speaker 1: dragging up the global averages. If you take those out 357 00:23:19,160 --> 00:23:22,040 Speaker 1: of the picture and focused on the big advanced economies 358 00:23:22,440 --> 00:23:26,080 Speaker 1: United States, the Euro Area, you've got inflation which peaked 359 00:23:26,119 --> 00:23:29,680 Speaker 1: at a slightly lower level, and it's going to come 360 00:23:29,760 --> 00:23:34,640 Speaker 1: down a little bit more over the course of um. Now, 361 00:23:35,280 --> 00:23:38,639 Speaker 1: why is inflation going to come down? Two big forces 362 00:23:38,720 --> 00:23:44,040 Speaker 1: of work. Firstly, goods prices. During the pandemic, we had 363 00:23:44,400 --> 00:23:48,280 Speaker 1: supply chain snarls and we had stimulus driven demand, and 364 00:23:48,400 --> 00:23:52,000 Speaker 1: both of those things supercharge demand for goods, pushing good 365 00:23:52,200 --> 00:23:57,400 Speaker 1: prices higher. That is now unwinding. Secondly, energy, of course, 366 00:23:57,480 --> 00:24:01,240 Speaker 1: the big story in Rush as invasion of Ukraine and 367 00:24:01,359 --> 00:24:05,560 Speaker 1: all that meant for energy prices. Energy prices rocketed higher 368 00:24:05,600 --> 00:24:09,200 Speaker 1: in now they've come a long way down from their peak. 369 00:24:10,240 --> 00:24:14,000 Speaker 1: Why is an inflation falling further? Well, the story there 370 00:24:14,359 --> 00:24:17,080 Speaker 1: is really a story about labor markets which are very tight, 371 00:24:17,800 --> 00:24:21,600 Speaker 1: wages which are rising very quickly, and so service prices 372 00:24:21,960 --> 00:24:25,440 Speaker 1: which are sticky, and it's that combination of falling goods prices, 373 00:24:26,440 --> 00:24:31,200 Speaker 1: energy prices, but service prices which are staying persistently high, 374 00:24:31,640 --> 00:24:33,560 Speaker 1: which mean inflation is going to come down quite a 375 00:24:33,680 --> 00:24:37,320 Speaker 1: lot over the course of but still at least in 376 00:24:37,400 --> 00:24:40,280 Speaker 1: the United States, stay above the comfort zone of the 377 00:24:40,359 --> 00:24:42,720 Speaker 1: Central Bank. And I started the program by sort of 378 00:24:42,760 --> 00:24:44,640 Speaker 1: giving a hint of some of the research that you've 379 00:24:44,760 --> 00:24:49,119 Speaker 1: just brought out with the team about how china reopening 380 00:24:49,240 --> 00:24:54,160 Speaker 1: could change this picture, because it could quite significantly change 381 00:24:54,200 --> 00:24:56,680 Speaker 1: the outlook for global commodity prices. And then I guess 382 00:24:56,760 --> 00:25:00,439 Speaker 1: that complicates the story for inflation more generally. Yeah, that's right. 383 00:25:01,080 --> 00:25:06,240 Speaker 1: So UM in two thousand and eight, two thousand and nine, 384 00:25:07,080 --> 00:25:10,240 Speaker 1: in the global financial crisis, and the problem for the 385 00:25:10,320 --> 00:25:14,040 Speaker 1: world was weak growth, and China road to the rescue 386 00:25:14,560 --> 00:25:20,920 Speaker 1: with an enormous stimulus boosting global demand. In the problem 387 00:25:21,200 --> 00:25:24,800 Speaker 1: for the world was high inflation, and China, in a 388 00:25:24,920 --> 00:25:28,480 Speaker 1: strange sort of way, helped out again, but this time 389 00:25:28,800 --> 00:25:33,800 Speaker 1: by not running a stimulus. Indeed, China's COVID zero policies, 390 00:25:34,200 --> 00:25:38,600 Speaker 1: which kept China's supply chains China's factories open but crimped 391 00:25:38,800 --> 00:25:43,720 Speaker 1: Chinese demand, probably contributed to lessening global inflation in the 392 00:25:43,800 --> 00:25:48,520 Speaker 1: year just past now in the year ahead, China is reopening, 393 00:25:49,160 --> 00:25:51,959 Speaker 1: and that raises the risk that China's economy is going 394 00:25:52,000 --> 00:25:55,200 Speaker 1: to come roaring back, good news for China's one point 395 00:25:55,280 --> 00:26:00,159 Speaker 1: four billion citizens, but potentially adding an additional impetus to 396 00:26:00,280 --> 00:26:05,159 Speaker 1: global inflation. Now we've done the calculations, we've looked at 397 00:26:05,160 --> 00:26:11,200 Speaker 1: the relationship between Chinese growth, commodity prices, and global inflation, 398 00:26:11,640 --> 00:26:15,240 Speaker 1: and our best estimate and it really is an estimate 399 00:26:15,280 --> 00:26:17,840 Speaker 1: at this point because there's just so much uncertainty about 400 00:26:17,880 --> 00:26:20,800 Speaker 1: how China is reopening is going to play out. But 401 00:26:20,920 --> 00:26:24,400 Speaker 1: our best estimate is that China is going to accelerate 402 00:26:24,520 --> 00:26:29,360 Speaker 1: from around three percent growth in to above five growth 403 00:26:29,400 --> 00:26:33,080 Speaker 1: in and that's going to add close to a percentage 404 00:26:33,119 --> 00:26:36,760 Speaker 1: point to global inflation. And if you saw even faster growth, 405 00:26:36,800 --> 00:26:38,760 Speaker 1: I mean, things have been moving on the ground so 406 00:26:38,960 --> 00:26:41,640 Speaker 1: much faster than anyone expected in terms of the reopening. 407 00:26:41,680 --> 00:26:44,320 Speaker 1: I mean, of course, that has that means soaring infection 408 00:26:44,400 --> 00:26:46,680 Speaker 1: rates in the short run and potentially some supply chain 409 00:26:46,760 --> 00:26:48,760 Speaker 1: issues in the short run. As we know, we can 410 00:26:48,800 --> 00:26:53,560 Speaker 1: see that factories and us sometimes are taking measures to 411 00:26:53,680 --> 00:26:58,400 Speaker 1: try and get control of the virus themselves. But assuming 412 00:26:58,520 --> 00:27:04,160 Speaker 1: that infections um work their course through the economy. Could 413 00:27:04,240 --> 00:27:06,560 Speaker 1: we see faster growth than the five percent you've just 414 00:27:06,640 --> 00:27:08,800 Speaker 1: talked about, and what would that mean for inflation? Yeah, 415 00:27:08,840 --> 00:27:11,359 Speaker 1: I think you're absolutely right, Stephanie. I mean the picture 416 00:27:11,440 --> 00:27:16,960 Speaker 1: in China is not just going to be a boom right. Indeed, 417 00:27:17,359 --> 00:27:21,840 Speaker 1: the end and the start of are probably going to 418 00:27:21,920 --> 00:27:27,160 Speaker 1: be really weak for Chinese growth, precisely because COVID infections 419 00:27:27,160 --> 00:27:31,000 Speaker 1: are sweeping the country and so people are self isolating, 420 00:27:31,280 --> 00:27:35,160 Speaker 1: They're staying at home to try and stay healthy. The rebound, 421 00:27:35,280 --> 00:27:38,560 Speaker 1: we think comes towards the end of the first quarter 422 00:27:38,960 --> 00:27:41,920 Speaker 1: and really picks up the pace heading into the second quarter. 423 00:27:42,920 --> 00:27:45,280 Speaker 1: I could that rebound be even stronger. Could we be 424 00:27:45,400 --> 00:27:49,440 Speaker 1: looking at Chinese growth not of five plus something this year, 425 00:27:49,680 --> 00:27:52,600 Speaker 1: but perhaps six percent plus something this year? I think 426 00:27:52,640 --> 00:27:57,280 Speaker 1: absolutely yes. The end of COVID zero is a significant 427 00:27:57,359 --> 00:28:00,679 Speaker 1: one off boost. We're also seeing Chinese as he makers 428 00:28:01,040 --> 00:28:06,000 Speaker 1: reverse course on their property policy, allowing a bit more demand, 429 00:28:06,080 --> 00:28:08,080 Speaker 1: a little more bit more finance to come into the 430 00:28:08,119 --> 00:28:12,320 Speaker 1: all important property sector. We're seeing them ease back on 431 00:28:12,480 --> 00:28:18,239 Speaker 1: their regulatory crackdown on private sector entrepreneurs. We're seeing them 432 00:28:18,280 --> 00:28:20,879 Speaker 1: promised to do a bit more in terms of fiscal stimulus. 433 00:28:21,520 --> 00:28:24,400 Speaker 1: All of these things together could well add an additional 434 00:28:24,600 --> 00:28:27,760 Speaker 1: impetus to China's growth, And if we see China's growth 435 00:28:29,040 --> 00:28:32,280 Speaker 1: moved from that five percent handle to that six percent handle, 436 00:28:32,600 --> 00:28:35,879 Speaker 1: then the impetus for global inflation will be that much higher. 437 00:28:36,359 --> 00:28:38,800 Speaker 1: Now we're looking at the start of the year. We've 438 00:28:38,800 --> 00:28:41,440 Speaker 1: also got the World Economic Forum coming up next week. 439 00:28:42,080 --> 00:28:43,880 Speaker 1: This is the kind of the time of year where 440 00:28:43,920 --> 00:28:46,040 Speaker 1: you have endless things. Certainly if you're me coming into 441 00:28:46,040 --> 00:28:48,480 Speaker 1: your inbox with forecasts about what's going to happen in 442 00:28:48,520 --> 00:28:51,560 Speaker 1: the markets where you should be putting your investments. Luckily, 443 00:28:51,640 --> 00:28:53,760 Speaker 1: neither of us get paid according to whether we can 444 00:28:53,840 --> 00:28:56,600 Speaker 1: predict what will happen to equities or bonds, thank goodness. 445 00:28:57,480 --> 00:28:59,440 Speaker 1: But a lot of those debates about what kind of 446 00:28:59,520 --> 00:29:01,640 Speaker 1: year this is going to be in financial markets come 447 00:29:01,720 --> 00:29:03,320 Speaker 1: down to what kind of year it's going to be 448 00:29:04,000 --> 00:29:06,600 Speaker 1: for inflation, and whether you know, at the end of 449 00:29:07,560 --> 00:29:11,920 Speaker 1: three inflation is basically under control, or whether we find 450 00:29:12,000 --> 00:29:16,320 Speaker 1: actually we've got at least another year of tough work 451 00:29:16,400 --> 00:29:19,920 Speaker 1: against inflation still to go. Where do you stand on that? 452 00:29:20,080 --> 00:29:21,720 Speaker 1: Do you think that this is going to be a 453 00:29:21,800 --> 00:29:25,520 Speaker 1: bit tougher than people are expecting this job of bringing 454 00:29:25,560 --> 00:29:28,280 Speaker 1: inflation down, or do you think that, you know, broadly, 455 00:29:28,360 --> 00:29:30,600 Speaker 1: by the end of this year will be done. So 456 00:29:30,800 --> 00:29:34,360 Speaker 1: it's a really interesting question, Stephanie. For the last couple 457 00:29:34,440 --> 00:29:38,800 Speaker 1: of years, the big mistake economists have made is in 458 00:29:39,240 --> 00:29:44,440 Speaker 1: failing to predict how high and how persistently high inflation 459 00:29:44,520 --> 00:29:49,440 Speaker 1: would be. I think we've got an exciting new opportunity. Um, 460 00:29:49,840 --> 00:29:52,320 Speaker 1: we've got an opportunity to be wrong in both directions. 461 00:29:53,400 --> 00:29:58,400 Speaker 1: So it's entirely possible that US labor markets will stay 462 00:29:58,520 --> 00:30:04,080 Speaker 1: hot and wages will continue to rise quickly, and inflation 463 00:30:04,160 --> 00:30:07,360 Speaker 1: will certainly come down from that ten percent level too 464 00:30:07,480 --> 00:30:11,480 Speaker 1: much lower level, but it will stay sticky, much higher 465 00:30:11,760 --> 00:30:14,080 Speaker 1: than the Fed and other big central banks are comfortable with. 466 00:30:15,520 --> 00:30:19,040 Speaker 1: It's also possible that the tightening which the Fed and 467 00:30:19,160 --> 00:30:21,920 Speaker 1: others have injected into the system over the course of 468 00:30:21,960 --> 00:30:25,479 Speaker 1: two is going to start kicking in and we're going 469 00:30:25,520 --> 00:30:29,000 Speaker 1: to see economies weakening much more quickly. We've got a 470 00:30:29,040 --> 00:30:32,520 Speaker 1: recession penciled in for the United States in the second half, 471 00:30:34,520 --> 00:30:37,520 Speaker 1: and if that happens, you've got the goods price deflation, 472 00:30:37,960 --> 00:30:41,880 Speaker 1: you've got the energy price deflation, and you've got less 473 00:30:41,880 --> 00:30:47,239 Speaker 1: pressure from wages. If that happens, perhaps inflation disappears as 474 00:30:47,360 --> 00:30:51,400 Speaker 1: quickly as it appeared. Masterful fence sitting there from our 475 00:30:51,480 --> 00:30:53,680 Speaker 1: chief economist, Tom Wallick. Tom, thank you so much. And 476 00:30:53,800 --> 00:31:05,880 Speaker 1: Selvaski in Anchora, thank you. That's it for Stephanomics, and 477 00:31:05,920 --> 00:31:07,680 Speaker 1: we will be in Davos next week for the World 478 00:31:07,760 --> 00:31:11,000 Speaker 1: Economic Forum, so look out for some special material coming 479 00:31:11,080 --> 00:31:14,320 Speaker 1: from down the mountain. In the meantime, please rate us 480 00:31:14,480 --> 00:31:16,840 Speaker 1: wherever you get this podcast, and check out the Bloomberg 481 00:31:16,920 --> 00:31:19,680 Speaker 1: News website for more economic news and views on the 482 00:31:19,720 --> 00:31:24,200 Speaker 1: global economy. You should also be following at economics on Twitter. 483 00:31:25,520 --> 00:31:28,320 Speaker 1: This episode was produced by Yang Yang, Summer Sadi and 484 00:31:28,440 --> 00:31:33,000 Speaker 1: Magnus Henrickson, with special thanks to Patrick Gillespie, Carolina Milan, 485 00:31:33,440 --> 00:31:39,160 Speaker 1: Beryl Ackman, Borhan Yokas, Selva Baja Baziki, and Tom Warlick. 486 00:31:40,120 --> 00:31:42,800 Speaker 1: Mike Sasso is the executive producer of Stephanomics.