Dr Enzio von Pfeil submits: Excerpts from Dr. Enzio von Pfeil's July 25, 2008, appearance on CNBC Asia: Dr. Enzio, while inflation was previously contained to food and energy, some economists say that is now spilling over to wages, triggering a wage-price spiral. They say broader inflation trends are now becoming more apparent. Do you share their view? Yes: it is only understandable that “the little guy” will feel the terrible effects of this “tax” of higher food and energy prices: it reduces his disposable income, so naturally he will seek to get more money. However, I doubt whether he will be able to do this. It all depends on how strong the unions in each country are. What are some of emerging patterns that is cause for concern? My guess is that you will not find a wage-price spiral evolving; instead, the “valve” will be rising social unrest. Indeed, we see this clearly in China. The Asian Development Bank said many Asian central banks have been behind the curve in tightening monetary policy to deal with inflation. With inflation threatening to become more serious now, what options do central bankers have? NO central bank can fight stagflation, i.e. cost push inflation. No central bank can: Force it to rain more (agricultural commodities) Force OPEC’s hand (oil) Force miners to resume work (South Africa’s gold miners) Tell China and India to stop growing/creating millions of jobs each year. I for one find it disgraceful that h ...
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Dr Enzio von Pfeil submits: Excerpts from Dr. Enzio von Pfeil's July 25, 2008, appearance on CNBC Asia: Dr. Enzio, while inflation was previously contained to food and energy, some economists say that is now spilling over to wages, triggering a wage-price spiral. They say broader inflation trends are now becoming more apparent. Do you share their view? Yes: it is only understandable that “the little guy” will feel the terrible effects of this “tax” of higher food and energy prices: it reduces his disposable income, so naturally he will seek to get more money. However, I doubt whether he will be able to do this. It all depends on how strong the unions in each country are. What are some of emerging patterns that is cause for concern? My guess is that you will not find a wage-price spiral evolving; instead, the “valve” will be rising social unrest. Indeed, we see this clearly in China. The Asian Development Bank said many Asian central banks have been behind the curve in tightening monetary policy to deal with inflation. With inflation threatening to become more serious now, what options do central bankers have? NO central bank can fight stagflation, i.e. cost push inflation. No central bank can: Force it to rain more (agricultural commodities) Force OPEC’s hand (oil) Force miners to resume work (South Africa’s gold miners) Tell China and India to stop growing/creating millions of jobs each year. I for one find it disgraceful that h ...