From Dr Peter Warburton.
Sir, In “The overstated inflation danger” (Comment, June 12), Martin Wolf seriously underestimates both the scale and proximity of a bout of global inflation. The inflationary threat is multifaceted and requires a more comprehensive examination.
While we plainly do not have Keynesian demand overheating or excessive monetary growth at the global level, there is an abundance of supply-side inflation and a real and present danger of fiscal inflation. Producer cost curves have shifted steeply higher for crude oil, mined commodities and agricultural products for a variety of reasons, including infrastructure deficits, government regulation and environmental policies. Failure to address structural government budget deficits means that, five years on from a global credit crisis, advanced economies have austerity fatigue.
Mr Wolf has argued forcefully that governments should go the whole hog and monetise additional fiscal spending. Central bank independence was thought to be an ultimate line of defence against the re-emergence of inflation but we have already seen that this is a fallacy. In the US and Japan, political expediency has trumped central bank independence and has destabilised medium-term inflation expectations. As more and more investors share the inflationary long view, in trigger-happy financial markets the long view can quickly become the short view.
Peter Warburton, Director, Economic Perspectives, Luton, Beds, UK
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