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World NewsEconomist rules out 'stagflation' and persistent price pressures

Economist rules out ‘stagflation’ and persistent price pressures

Gas costs are seen after U.S. client costs surged in April, with a measure of underlying inflation blowing previous the Federal Reserve’s 2% goal, in Beverly Hills, California, June 2, 2021.

Lucy Nicholson | Reuters

Inflation expectations are nonetheless being pushed by a “temporary spate of supply issues” and there is no such thing as a signal of continued upward strain on costs, based on veteran economist Carl Weinberg.

Global inventory markets have been roiled on Tuesday by a spike in bond yields which noticed the benchmark 10-year Treasury yield contact a excessive of 1.567%.

Along with concern over the U.S. debt ceiling debate in Washington, buyers are additionally involved about rising client costs. Federal Reserve Chair Jerome Powell instructed the Senate Banking Committee on Tuesday that inflation might persist for longer than anticipated as reopening pressures and provide chain issues converge.

Speaking to CNBC’s “Squawk Box Europe” on Wednesday, Weinberg, chief economist at High Frequency Economics, mentioned the worldwide semiconductor scarcity, bottlenecks at ports and Covid-19 impediments have been a “temporary spate of supply issues” fairly than systemic inflationary pressures.

“Inflation is a process and not a one-time change in the level of prices, which I think is what we’re seeing right now,” Weinberg mentioned.

“We’re seeing an adjustment to new temporary realities on the supply side but we’re not seeing the stagflation process that we saw in the 1970s recurring again.”

Stagflation refers to a state of affairs first recognized within the Nineteen Seventies wherein inflation is excessive, financial development slows and unemployment stays persistently excessive. The drawback for financial policymakers in such an occasion is that measures to curb inflation, similar to wage and price controls or contractionary financial coverage, might additional improve unemployment.

Weinberg mentioned he didn’t but see a foundation for such a state of affairs, including: “This is not 1973.”

While acknowledging {that a} “large segment” of the market believes that inflation can be persistently greater, which in flip is driving up bond yields, Weinberg argued that there are numerous different elements maintaining the U.S. economic system imbalanced, “not least of which is Covid.”

“With so many Americans resisting vaccination, that will continue to be a problem, and a brake on the economy, for a very, very long time. The chip problem has no short-term solution to it, the supply bottlenecks at the port don’t have a short-term solution,” he mentioned.

He argued that this was not the Fed’s fault and that “supply and demand will rebalance,” which means costs will cease rising “after a certain point.”

“We’re just going through a really rough patch right now as we reopen the economy at a pace never before seen, after a closure that we’ve never seen before, and we’re getting some unexpected bumps along the way,” Weinberg mentioned.

“I’m not sure though that you can add that up into a story that says that beyond the immediate reopening, that we’re going to see continued upward pressure on prices.”

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