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A delicate condition - Fears of both recession and inflation
by Stefanie at 5:12 pm EST, Jan 17, 2008 |
Jan 17th 2008 | WASHINGTON, DC
Economist.com The world economy is increasingly powered by countries, such as China and India, whose growth is far more energy- and commodity-intensive than that of rich countries. This shift means that the usual relationship between America’s business cycle and commodity prices may change. Past American recessions have sent the price of oil and other resources down. That may no longer be so. How much to worry depends on whether this combination affects people’s expectations of future inflation. Because central banks have earned a reputation as inflation fighters and people expect long-term inflation to remain low, price shocks—even on the scale of the recent commodity-price surge—need not translate into persistently higher inflation. Were workers and firms to expect higher inflation, and set wages and prices accordingly, central bankers would face a big problem.
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A delicate condition - Fears of both recession and inflation
by noteworthy at 9:44 pm EST, Jan 17, 2008 |
The world economy is increasingly powered by countries, such as China and India, whose growth is far more energy- and commodity-intensive than that of rich countries. This shift means that the usual relationship between America’s business cycle and commodity prices may change. Past American recessions have sent the price of oil and other resources down. That may no longer be so. The rich world could easily face a prolonged period of weaker growth and persistent price pressure. How much to worry depends on whether this combination affects people’s expectations of future inflation. Because central banks have earned a reputation as inflation fighters and people expect long-term inflation to remain low, price shocks -- even on the scale of the recent commodity-price surge -- need not translate into persistently higher inflation. Were workers and firms to expect higher inflation, and set wages and prices accordingly, central bankers would face a big problem.
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