Speaker 1: Hello, Stephanomics. Here the podcast that brings you the global economy.
Speaker 1: There are plenty of people in the Bloomberg newsroom who
Speaker 1: would tell you that one number matters more than any
Speaker 1: other in the global economy in three and that's US inflation.
Speaker 1: We got the latest print this week, and for at
Speaker 1: least a few hours, the conversation was of little else
Speaker 1: what it meant for interest rates, global markets, unemployment. But
Speaker 1: guess what, US inflation is not the only thing that matters.
Speaker 1: In fact, the event which might have the greatest impact
Speaker 1: on the global economy this year may already have happened,
Speaker 1: and that's Chinese President Seijingping's decision to reopen the Chinese
Speaker 1: economy almost overnight short term that has sent COVID infection
Speaker 1: rates soaring. It might even weaken the president's position, given
Speaker 1: how much he has invested in protecting the population from
Speaker 1: the virus. But if it leads to markedly faster Chinese
Speaker 1: growth in the second part of this year, we also
Speaker 1: know it will push up the price of raw materials
Speaker 1: and energy again and really complicate the job of cutting
Speaker 1: inflation in Europe and the US. Our chief global economist,
Speaker 1: Tom Marlick, has run the numbers on what exactly that
Speaker 1: might mean for the rest of us, So stick around
Speaker 1: to hear the results. We're also going to hear from
Speaker 1: the land of upside down Economics with a report and
Speaker 1: conversation about Turkey. But first, a quick postcard from Argentina,
Speaker 1: which had an inflation rate over the course of two
Speaker 1: of just under one. That's the highest rate in the
Speaker 1: G twenty group of economies, and it has plenty of
Speaker 1: awkward consequences for the economy and for Argentina's people, as
Speaker 1: our Economy and Government reporter Patrick Gillespie describes, for tourists,
Speaker 1: it's also made changing money quite an exercise. Yeah, I'm
Speaker 1: standing at the entrance of a Western Union branch and
Speaker 1: Central Buenos Aires, Argentina. The company provides a popular currency
Speaker 1: exchange service, and at twelve pm on a regular summer Thursday,
Speaker 1: the line is out the door. Inside the queue is
Speaker 1: like United Nations of buzzing tourists speaking German, French, Portuguese
Speaker 1: and English while they're waiting to exchange cash. It might
Speaker 1: look all normal until you take a peek into people's bags,
Speaker 1: from fanny packs to backpacks and big purses. Everyone here
Speaker 1: is walking out with loads of pacil bills in cash.
Speaker 1: The first time I did it kind of fels like
Speaker 1: I'm I'm rubbing a bank or so that was some
Speaker 1: weird When when do you have so much money in
Speaker 1: your hands? That was Stefan tavern If, twenty eight year
Speaker 1: old tourist from the Netherlands. He's fetching money to pay
Speaker 1: for his next flight with a pile of cash as
Speaker 1: thick as a brick. He's much more experienced now, but
Speaker 1: having so much cash on hand still leaves him a
Speaker 1: little unsettled. And the other thing based having so much
Speaker 1: so many notes right, Like, it's not it's basically thousand
Speaker 1: is the highest one you can get. And I just
Speaker 1: picked up, like what a couple hundred dollars and our
Speaker 1: euros and that's it's not just I love money, um
Speaker 1: just Argentina is a complex economy, with at least a
Speaker 1: dozen different exchange rates and a labyornth of currency controls.
Speaker 1: Those restrictions have created a growing gap between the official
Speaker 1: exchange rate and all of the other informal exchange rates.
Speaker 1: So if you go to a bank a t M
Speaker 1: in Buenos Aires, for example, one dollar would get you
Speaker 1: about a hundred and eighty paces at the official rate,
Speaker 1: but if you go to Western Union you get about
Speaker 1: three hundred and thirty five paces per dollar because the
Speaker 1: company offers a parallel exchange rate used in financial markets.
Speaker 1: That's nearly double the amount of money you get going
Speaker 1: through the traditional banking system. So how did the paco
Speaker 1: get here? Well, the answer is threefold. First, Argentina's inflation
Speaker 1: rate is nearing one of the highest in the world. Second,
Speaker 1: the government intentionally keeps the official exchange rate low to
Speaker 1: protect its razor thin currency reserves. This helps to prevent
Speaker 1: a major currency crisis and evaluation, which is something the
Speaker 1: government wants to avoid at all costs, at least until
Speaker 1: this year's presidential election in October. The last government that
Speaker 1: allowed a major run on the pace so got voted
Speaker 1: out after just one term in office. And finally, the
Speaker 1: largest cash bill in Argentina is only one thousand paso's
Speaker 1: worth about three dollars today. The government refuses to make
Speaker 1: larger denomination bills and says it wants to focus on
Speaker 1: digital payments, but critics say that's just an excuse. They
Speaker 1: argued that the central Bank doesn't want to print a
Speaker 1: larger denomination bill because it would be an admission that
Speaker 1: they failed to contain inflation. The peril of this currency
Speaker 1: crisis has made Argentina both a tourist haven and a
Speaker 1: laughing stock. At a football match last year, Brazilian fans
Speaker 1: tore up pays so cash bills to mock their Argentine
Speaker 1: opponents as their team cruise to victory, and a TikTok
Speaker 1: video went viral in which a Dutch influencer with the
Speaker 1: handle travel Tom Tom added insult to Argentina's injury. Hey, Europeans,
Speaker 1: when you think your inflation is bad, this is Argentina
Speaker 1: seventy inflation. This is the biggest bill in Argentina. It's
Speaker 1: one thousand vessels and they're worth it only three dollars.
Speaker 1: I'm so sorry Argentina. Of course, on the ground, it's
Speaker 1: anything but funny. The number of people living in poverty
Speaker 1: and Argentina spiked to nearly from just five years ago.
Speaker 1: A consulting firm called the Agnostico Politico counted about ten
Speaker 1: thousand protests in Argentina last year. That's the highest number
Speaker 1: in more than a decade. Inflation, galloping at such a
Speaker 1: fast pace has wiped out paychecks for middle class Argentine's
Speaker 1: Lucan Palabosino is a nurse working two jobs who had
Speaker 1: to move back in with her father so she could
Speaker 1: save money for her son. I can barely save money.
Speaker 1: It's hard. Everything is so expensive. A pair of shoes
Speaker 1: is forty paces, and those nurses the movement we make
Speaker 1: is a hundred and twenty thousand or a hundred and
Speaker 1: thirty thousand paces or a month, so a pair of
Speaker 1: shoes is half my salary. Looming over the horizon is
Speaker 1: this year's presidential election. A new press acident could lift
Speaker 1: all the currency controls so that there's no gap between
Speaker 1: exchange rates. Still, it's not clear the official paso rate
Speaker 1: will be getting stable anytime soon. Economists surveyed by Argentina's
Speaker 1: Central Bank see one dollar being worth six hundred and
Speaker 1: twenty four pesos by the end of two thousand four.
Speaker 1: That's versus the official rate now of a hundred and
Speaker 1: eighty pasos per dollar. Many believe a major currency devaluation
Speaker 1: is inevitable at some point, so no matter who wins
Speaker 1: the presidential race, you can still bet that cash will
Speaker 1: be king in Argentina and you will always find exchange
Speaker 1: houses shouting cambio or exchange on the streets of Buenos Aires.
Speaker 1: In Buenos Aires, I'm Patrick Gillespie for Bloomberg News. While
Speaker 1: I happen to know that quite a few economic students
Speaker 1: listen to this podcast, God help them. In fact, my
Speaker 1: teenage son has even been encouraged to listen, though he
Speaker 1: seems to have resisted so far. And if they take
Speaker 1: monetary policy one oh one, they'll be taught that if
Speaker 1: a country has a problem with inflation, it needs to
Speaker 1: raise interest rates increase the cost of money. Now the
Speaker 1: Argentine Central Bank has done that. I mean, it's true.
Speaker 1: With the presidential election coming up in October, the authorities
Speaker 1: are a bit less keen to raise rates. But the
Speaker 1: official interest rate is already at seventy. Now if we
Speaker 1: go to Turkey, inflations also in the high double digits there,
Speaker 1: but the official interest rate is only nine and the
Speaker 1: central bank has cut rates significantly in one and two.
Speaker 1: This reflects not the economics of textbooks, but the economics
Speaker 1: of President Argon. Central bank governors who have disagreed with
Speaker 1: this policy over the past few years haven't lasted very
Speaker 1: long in the job. Or Bloomberg's economist covering Turkey used
Speaker 1: to work at the central bank. In a minute, I'll
Speaker 1: ask her what it's like to be tearing up the
Speaker 1: rules of economic policy on a daily basis. But first
Speaker 1: a taste of what it's like to be in Turkey
Speaker 1: from our economy and government reporter Beryl Ackman, each other
Speaker 1: graduling inflation will below from now on. Therefore minimum wage
Speaker 1: phrases a number that will easily help people get by.
Speaker 1: We have solved inflation. That was a Turkish finance minister
Speaker 1: Nebati in an interior last week. He celebrated inflatitions downward
Speaker 1: trend and said as government had solved the fastest go
Speaker 1: out and prices in over two decades. Trouble is, inflation
Speaker 1: is still running around sixty Compare that to the U
Speaker 1: S and the EU, where consumers are grumbling about inflation
Speaker 1: that's in the high single digits. I am Billy Lackman,
Speaker 1: an economy reporter for Bloomberk based in Turkey, where basic
Speaker 1: kitchen stables like milk or eggs have become luxuries, and
Speaker 1: where prices have become so unanchored that it's hard to
Speaker 1: tell what's expensive anymore and what the normal prices. On
Speaker 1: a recent Sunday, I want to get coffee at the
Speaker 1: nearest Starbucks to my house in a Turkish capital, Anchara.
Speaker 1: Because authorizing electricity costs, we have stopped using a refrigerator.
Speaker 1: I will see a two thousand, three thousand bluer electors
Speaker 1: to bill every month. That is the voice of a
Speaker 1: flower shop merchant who has asked me to omit his
Speaker 1: name to avoid any trouble at his workplace or with authorities.
Speaker 1: He told me earlier that it is landlord increased. The
Speaker 1: workplace is read by almost two hundred percent. I chat
Speaker 1: a bit with him, and I comment that despite high inflation,
Speaker 1: it looks like business as usual on the outside. Cafes
Speaker 1: and restaurants are filled, Shopping malls are crowded. For many
Speaker 1: Turkey watchers, that is a strange part that life feels
Speaker 1: normal in many ways. Pointing at the coffee cop I'm holding,
Speaker 1: he tells me that people need to socialize and have fun.
Speaker 1: Inflation or not, They say, Starbucks are always crowded. What's
Speaker 1: the guy supposed to do? One would go crazy. It's
Speaker 1: a mortal world. Inflation is a problem pretty much everywhere
Speaker 1: around the globe, but Turkey had double digit inflation even
Speaker 1: before the war began. The situation in Ukraine just made
Speaker 1: things way worse economic orthodox He says that when inflation spikes,
Speaker 1: central banks should raise interest rates to cool the economy,
Speaker 1: reduced demand for goods and services and lower prices. But
Speaker 1: as other top bankers rushed through as their interest rates,
Speaker 1: Turkey did the opposite. From August through November last year,
Speaker 1: the Turkish Central Bank cut rates. The benchmark rate now
Speaker 1: stands at nine percent when that I stood for inflation,
Speaker 1: which is six. This makes Turkey have one of the
Speaker 1: deepest negative real rates, meaning money is extremely cheap. President
Speaker 1: rejeb Type Ardon, the country's long serving leader, has a
Speaker 1: big hand in Turkey's policy. FI is that the indictmate.
Speaker 1: I told you we would lower the interest rates to
Speaker 1: single digits, and we did. It will continue like this
Speaker 1: from now on. They say. Inflation is like this and
Speaker 1: that don't worry that too will fall. President Ardon is
Speaker 1: hardly alone and preferring to keep borrowing costs law. But
Speaker 1: the president argues that lower rates will bring down inflation.
Speaker 1: We have yet to see this theory validated in real life,
Speaker 1: and while most nations are trying to slow their economy
Speaker 1: is a bit too cool inflation. Ardn is boosting spending
Speaker 1: and raising pay for minimum wage earners. It's been dubbed
Speaker 1: the Turkey economy model and Who's killer will become one
Speaker 1: of the fastest glowing trees in the world. For now,
Speaker 1: Turkey citizens are hurting. Farouk, who owns a corner store
Speaker 1: in a quiet street near Anchor a central life square,
Speaker 1: says dairy has become unaffordable. Essential food items, for example,
Speaker 1: daily products have become incredibly expensive, extremely expensive. We compromise
Speaker 1: from ourselves. Our preferences have shifted and we tried to
Speaker 1: make some of them ourselves. Because the money we are
Speaker 1: and does not compensate for our purchasing power. We try
Speaker 1: to say more. Many economists think Turkey needs an urgent
Speaker 1: policy you turn, and that the current policy format is unsustainable.
Speaker 1: Turkey's elections are expected to take place in about five months,
Speaker 1: and that's why President Ardon is fixated on economic growth.
Speaker 1: But Ardon and his UG party are facing a serious
Speaker 1: challenge from a six party opposition alliance and growing discontent
Speaker 1: over high living costs. So it is is posed, I
Speaker 1: said to suggest Ardon has a high chance of getting
Speaker 1: re elected, but this party may see power. Turkey's finance
Speaker 1: Minister said the nation will keep its policy of low
Speaker 1: interest rates regardless of what happens in the election. Meantime,
Speaker 1: the Turkish people are desperate for something, anything, to ease
Speaker 1: the skyrocketing prices. Arton, who works at a stationary shop
Speaker 1: in Ankara, is struggling to provide for his family. We
Speaker 1: cannot get by work with minimum wage to look after
Speaker 1: two kids and look after the household pay round. It's impossible.
Speaker 1: What we are doing is just pretty I asked Arton
Speaker 1: what items he has the most trouble paying for. The
Speaker 1: list keeps growing. London's and said to them, first food,
Speaker 1: then clothing. Before we used to go out to dinner
Speaker 1: once or twice and long. Now it's maybe every six months,
Speaker 1: and it's even rare. I'm Berry Lackman for Bloomberg News. Yeah, so,
Speaker 1: as promised, we will dig into the upside down world
Speaker 1: of Turkish economic policies now and broaden things out to
Speaker 1: talk about what's going to happen to inflation everywhere. With
Speaker 1: Bloomberg's Turkey economist Selva Besiki joining from Anchora, and our
Speaker 1: chief global economist Tom Marlick, who's with me here this
Speaker 1: week in New York. Welcome both of you, Silva, thank
Speaker 1: you so much. You worked for several years at the
Speaker 1: Turkish Central Bank before we helped you to escape. We
Speaker 1: like to think, just sort of from a personal note,
Speaker 1: is it difficult for officials at the central bank to
Speaker 1: to stick with these unorthodox policies? Do you think? Yes?
Speaker 1: And no? There's still very good technocrats at the bank
Speaker 1: who produced analysis based on orthodox economic views, but the
Speaker 1: monetary policy committee caters to the demands of the political leadership.
Speaker 1: The law interest rate policy, of course comes at the
Speaker 1: cost of weeklyra and high inflation, and the bank has
Speaker 1: to resort to all these alternative tools to lessen the
Speaker 1: negative feedback on both. That only works partially and pushes
Speaker 1: the economy into over regulation. And I guess the question
Speaker 1: that lots of people ask is why there hasn't been
Speaker 1: a bigger crisis in Turkey with them following these policies
Speaker 1: now for several years. People, you know, things are tough
Speaker 1: in Turkey. I mean, we've we've heard that, but people
Speaker 1: have been expecting that to be a tipping point, a
Speaker 1: sort of moment of truth just doesn't seem to come. Yeah,
Speaker 1: especially when we think of the very high external financing
Speaker 1: needs of the economy. I'll just give you one number
Speaker 1: to illustrate. The external debt that is due within a
Speaker 1: year accounts for the fifth of GDP, and the resource
Speaker 1: coverage of this death is less than six So, as
Speaker 1: you said, what is stopping this crisis from coming? Two things.
Speaker 1: The central Bank has been in travening ah installed interventions
Speaker 1: into currency markets, which we calculate to be at around
Speaker 1: a hundred billion US dollars generated through October last year.
Speaker 1: This in itself, of course, as the fragilities and takes
Speaker 1: the net reserves into even deeper negatives. There's also a
Speaker 1: second point, is this money flows, the mystery money flows
Speaker 1: into the country under net errors and emissions. Now these
Speaker 1: are flows that normally would be small statistical discrepancies under
Speaker 1: the balance of payments, but for Turkey they are at
Speaker 1: twenty two billion U S dollars. In other words, they
Speaker 1: financed about half all of the current account deficit. Um.
Speaker 1: The central Bank thinks it's currency influence from deposits accounts
Speaker 1: held abroad. A more likely explanation, however, is offered even
Speaker 1: by the Minister of Finance. Actually, um cash flows from Russia.
Speaker 1: So just to sort of pick that a little bit,
Speaker 1: the reason why you'd expect Turkey to have a crisis
Speaker 1: is it's dependent on borrowing from the rest of the
Speaker 1: world to cover the gap in its external balance, and
Speaker 1: the central bank has been sort of propping up the currency,
Speaker 1: spending lots of foreign reserves on doing that, and despite
Speaker 1: and it doesn't have enough of those reserves. But somehow
Speaker 1: there's some sort of secret money coming into the country
Speaker 1: which makes the numbers add up. Is that broadly what's happened. Yeah,
Speaker 1: so the secret money coming in is definitely you know,
Speaker 1: most of it is uh cash flows from Russia. There's
Speaker 1: this other factor to consider them. The central banks reserves
Speaker 1: are in negatives, so how do they even intervene? Very
Speaker 1: very valid point um. The central bank has enhanced its
Speaker 1: sources of reserves since the beginning of last year. They
Speaker 1: are now tapping into um foreign currency revenues of exporters.
Speaker 1: You have to convert of your revenues through the central
Speaker 1: bank and give the all the effects to the bank.
Speaker 1: So the sort of creative bookkeeping and also a lot
Speaker 1: of into sort of forcing the hands of exporters and
Speaker 1: taking some of the money they're earning abroad. They're lucky
Speaker 1: in a sense that You've got quite a lot of
Speaker 1: Russians who are looking to shelter money from sanctions. Absolutely,
Speaker 1: and there's also the other factors. For a couple of
Speaker 1: years now, the real estate market has been quite um
Speaker 1: vibrant with foreign investors coming in, and that has been
Speaker 1: one major area for the Russians to come and claim
Speaker 1: residency here um and perhaps even apply for citizenship through
Speaker 1: property requirement. UM. It used to be that Turkey's southern neighbors,
Speaker 1: so Iran and Iraq nationals used to spare head the
Speaker 1: number one investors in the property market, but since the
Speaker 1: conflict in or the war in Ukraine, now that number
Speaker 1: one position is held by Russians. And you have a
Speaker 1: very distinguished career as an economist, and I guess we
Speaker 1: wouldn't have expected to be talking about mystery flows and
Speaker 1: the geopolitics of money coming in from Russia. I mean,
Speaker 1: there's an economist sitting in Turkey. You know what, what
Speaker 1: do you think is going to happen? Do you think
Speaker 1: there'll be a reversal in these policies after the election
Speaker 1: this year? So, I mean, for the economic students who
Speaker 1: are listening, we know that fighting inflation, um, the interest
Speaker 1: rate is the main course, and all the other policies
Speaker 1: are just side dishes without the anchor from the policy rate.
Speaker 1: There's only so much we can expect from these alternative
Speaker 1: tools that the central bank currently seems to be resorting too.
Speaker 1: So yeah, even that's so called Turkey economy model was
Speaker 1: supposed to boost the economy on four goals UM investments,
Speaker 1: high exports, currents to councer plus and UH strongerly round
Speaker 1: lower inflation. It has failed on all four of these
Speaker 1: goals in the year that it's been it's been applied.
Speaker 1: The central branks reserves are below standard safety levels. There
Speaker 1: seems to be room for interventions until May this year. Um.
Speaker 1: That is probably one of the reasons why the current
Speaker 1: political leadership is considering pulling up elections from June to May.
Speaker 1: After that, policymakers could either continue on this road with
Speaker 1: capital restrictions or they will have to do a policy versal.
Speaker 1: As you say, we see the second option as a
Speaker 1: more likely outcome at the moment, regardless of the outcome
Speaker 1: of the elections. And just briefly, I mean, what do
Speaker 1: you think the economy is going to look like in
Speaker 1: a few years time. What's the long term impact of
Speaker 1: this period of unorthodox policy going to be well, whoever
Speaker 1: is going to be in charge of the economic situation
Speaker 1: has the type time ahead. Um, it's a really tight
Speaker 1: rope walking kind of situation. UM. As you said, Turkey,
Speaker 1: isn't that energy important usually run as a current account deficit,
Speaker 1: So getting put forward investness is really going to be
Speaker 1: critical and that requires a little bit of more long
Speaker 1: term looking rebuilding the institutional terror, which is really going
Speaker 1: to take a long time. Silva, Thank you so much,
Speaker 1: Tom Marlick. Just broadening this out, We've had two pieces
Speaker 1: from countries that have got pretty much the worst of
Speaker 1: the global inflation problem at the moment, Argentina and Turkey. UM.
Speaker 1: Closer to home US Europe, inflation does seem to be
Speaker 1: coming down, but of course a critical question is how
Speaker 1: fast does it come down and where does that leave
Speaker 1: policies for central banks and interest rates next year. What
Speaker 1: are you currently thinking so globally, Stephanie, We think inflation
Speaker 1: peaked around ten percent in the third quarter of two,
Speaker 1: and by the end of three we think he will
Speaker 1: have come down to around five The sun. Now, of course,
Speaker 1: that global average is being skewed up by some of
Speaker 1: the countries. You've just been discussing countries like Turkey and Argentina,
Speaker 1: which don't account for a big share of the global economy,
Speaker 1: but where inflation is just so sky high that it's
Speaker 1: dragging up the global averages. If you take those out
Speaker 1: of the picture and focused on the big advanced economies
Speaker 1: United States, the Euro Area, you've got inflation which peaked
Speaker 1: at a slightly lower level, and it's going to come
Speaker 1: down a little bit more over the course of um. Now,
Speaker 1: why is inflation going to come down? Two big forces
Speaker 1: of work. Firstly, goods prices. During the pandemic, we had
Speaker 1: supply chain snarls and we had stimulus driven demand, and
Speaker 1: both of those things supercharge demand for goods, pushing good
Speaker 1: prices higher. That is now unwinding. Secondly, energy, of course,
Speaker 1: the big story in Rush as invasion of Ukraine and
Speaker 1: all that meant for energy prices. Energy prices rocketed higher
Speaker 1: in now they've come a long way down from their peak.
Speaker 1: Why is an inflation falling further? Well, the story there
Speaker 1: is really a story about labor markets which are very tight,
Speaker 1: wages which are rising very quickly, and so service prices
Speaker 1: which are sticky, and it's that combination of falling goods prices,
Speaker 1: energy prices, but service prices which are staying persistently high,
Speaker 1: which mean inflation is going to come down quite a
Speaker 1: lot over the course of but still at least in
Speaker 1: the United States, stay above the comfort zone of the
Speaker 1: Central Bank. And I started the program by sort of
Speaker 1: giving a hint of some of the research that you've
Speaker 1: just brought out with the team about how china reopening
Speaker 1: could change this picture, because it could quite significantly change
Speaker 1: the outlook for global commodity prices. And then I guess
Speaker 1: that complicates the story for inflation more generally. Yeah, that's right.
Speaker 1: So UM in two thousand and eight, two thousand and nine,
Speaker 1: in the global financial crisis, and the problem for the
Speaker 1: world was weak growth, and China road to the rescue
Speaker 1: with an enormous stimulus boosting global demand. In the problem
Speaker 1: for the world was high inflation, and China, in a
Speaker 1: strange sort of way, helped out again, but this time
Speaker 1: by not running a stimulus. Indeed, China's COVID zero policies,
Speaker 1: which kept China's supply chains China's factories open but crimped
Speaker 1: Chinese demand, probably contributed to lessening global inflation in the
Speaker 1: year just past now in the year ahead, China is reopening,
Speaker 1: and that raises the risk that China's economy is going
Speaker 1: to come roaring back, good news for China's one point
Speaker 1: four billion citizens, but potentially adding an additional impetus to
Speaker 1: global inflation. Now we've done the calculations, we've looked at
Speaker 1: the relationship between Chinese growth, commodity prices, and global inflation,
Speaker 1: and our best estimate and it really is an estimate
Speaker 1: at this point because there's just so much uncertainty about
Speaker 1: how China is reopening is going to play out. But
Speaker 1: our best estimate is that China is going to accelerate
Speaker 1: from around three percent growth in to above five growth
Speaker 1: in and that's going to add close to a percentage
Speaker 1: point to global inflation. And if you saw even faster growth,
Speaker 1: I mean, things have been moving on the ground so
Speaker 1: much faster than anyone expected in terms of the reopening.
Speaker 1: I mean, of course, that has that means soaring infection
Speaker 1: rates in the short run and potentially some supply chain
Speaker 1: issues in the short run. As we know, we can
Speaker 1: see that factories and us sometimes are taking measures to
Speaker 1: try and get control of the virus themselves. But assuming
Speaker 1: that infections um work their course through the economy. Could
Speaker 1: we see faster growth than the five percent you've just
Speaker 1: talked about, and what would that mean for inflation? Yeah,
Speaker 1: I think you're absolutely right, Stephanie. I mean the picture
Speaker 1: in China is not just going to be a boom right. Indeed,
Speaker 1: the end and the start of are probably going to
Speaker 1: be really weak for Chinese growth, precisely because COVID infections
Speaker 1: are sweeping the country and so people are self isolating,
Speaker 1: They're staying at home to try and stay healthy. The rebound,
Speaker 1: we think comes towards the end of the first quarter
Speaker 1: and really picks up the pace heading into the second quarter.
Speaker 1: I could that rebound be even stronger. Could we be
Speaker 1: looking at Chinese growth not of five plus something this year,
Speaker 1: but perhaps six percent plus something this year? I think
Speaker 1: absolutely yes. The end of COVID zero is a significant
Speaker 1: one off boost. We're also seeing Chinese as he makers
Speaker 1: reverse course on their property policy, allowing a bit more demand,
Speaker 1: a little more bit more finance to come into the
Speaker 1: all important property sector. We're seeing them ease back on
Speaker 1: their regulatory crackdown on private sector entrepreneurs. We're seeing them
Speaker 1: promised to do a bit more in terms of fiscal stimulus.
Speaker 1: All of these things together could well add an additional
Speaker 1: impetus to China's growth, And if we see China's growth
Speaker 1: moved from that five percent handle to that six percent handle,
Speaker 1: then the impetus for global inflation will be that much higher.
Speaker 1: Now we're looking at the start of the year. We've
Speaker 1: also got the World Economic Forum coming up next week.
Speaker 1: This is the kind of the time of year where
Speaker 1: you have endless things. Certainly if you're me coming into
Speaker 1: your inbox with forecasts about what's going to happen in
Speaker 1: the markets where you should be putting your investments. Luckily,
Speaker 1: neither of us get paid according to whether we can
Speaker 1: predict what will happen to equities or bonds, thank goodness.
Speaker 1: But a lot of those debates about what kind of
Speaker 1: year this is going to be in financial markets come
Speaker 1: down to what kind of year it's going to be
Speaker 1: for inflation, and whether you know, at the end of
Speaker 1: three inflation is basically under control, or whether we find
Speaker 1: actually we've got at least another year of tough work
Speaker 1: against inflation still to go. Where do you stand on that?
Speaker 1: Do you think that this is going to be a
Speaker 1: bit tougher than people are expecting this job of bringing
Speaker 1: inflation down, or do you think that, you know, broadly,
Speaker 1: by the end of this year will be done. So
Speaker 1: it's a really interesting question, Stephanie. For the last couple
Speaker 1: of years, the big mistake economists have made is in
Speaker 1: failing to predict how high and how persistently high inflation
Speaker 1: would be. I think we've got an exciting new opportunity. Um,
Speaker 1: we've got an opportunity to be wrong in both directions.
Speaker 1: So it's entirely possible that US labor markets will stay
Speaker 1: hot and wages will continue to rise quickly, and inflation
Speaker 1: will certainly come down from that ten percent level too
Speaker 1: much lower level, but it will stay sticky, much higher
Speaker 1: than the Fed and other big central banks are comfortable with.
Speaker 1: It's also possible that the tightening which the Fed and
Speaker 1: others have injected into the system over the course of
Speaker 1: two is going to start kicking in and we're going
Speaker 1: to see economies weakening much more quickly. We've got a
Speaker 1: recession penciled in for the United States in the second half,
Speaker 1: and if that happens, you've got the goods price deflation,
Speaker 1: you've got the energy price deflation, and you've got less
Speaker 1: pressure from wages. If that happens, perhaps inflation disappears as
Speaker 1: quickly as it appeared. Masterful fence sitting there from our
Speaker 1: chief economist, Tom Wallick. Tom, thank you so much. And
Speaker 1: Selvaski in Anchora, thank you. That's it for Stephanomics, and
Speaker 1: we will be in Davos next week for the World
Speaker 1: Economic Forum, so look out for some special material coming
Speaker 1: from down the mountain. In the meantime, please rate us
Speaker 1: wherever you get this podcast, and check out the Bloomberg
Speaker 1: News website for more economic news and views on the
Speaker 1: global economy. You should also be following at economics on Twitter.
Speaker 1: This episode was produced by Yang Yang, Summer Sadi and
Speaker 1: Magnus Henrickson, with special thanks to Patrick Gillespie, Carolina Milan,
Speaker 1: Beryl Ackman, Borhan Yokas, Selva Baja Baziki, and Tom Warlick.
Speaker 1: Mike Sasso is the executive producer of Stephanomics.