Central banks need to take decisive action to tame rampant inflation, rein in underlying inflation expectations and repair their damaged credibility.
That was the consensus among more than 20 members of the Geneva Association Economic Forum (GAEF) Network, comprised of chief economists and chief strategy officers from the world’s leading insurers and reinsurers, meeting recently in Paris.
This, they say, could be achieved by rate hikes coupled with quantitative tightening. Monetary policies are not the only game in town, however: more liberal trade policies, more rigorous competition policies and more flexible labour market policies could make a significant contribution to bringing inflation down.
They say that the socio-political consequences of the current surge in inflation will be felt for much longer than the inflation episode itself, and as a result we should prepare for growing social tensions, challenges to the green transition and geopolitical divisions.
GAEF Chairman and Munich Re chief economist Michael Menhart, said: “The global economy has become much more fragile again, as the Russian war in the Ukraine, very high inflation and still unresolved supply chain problems all impact the economic outlook.”
“Uncertainties are elevated and downside risks dominate – an outright recession in a major economy is a distinct possibility. Inflation remains the key concern. Going forward, I expect inflation to be lower than in 2022, but still at very elevated levels and higher than central bank targets.”
