Inflation Stuck in Low Gear Warns Roubini

inflation stuck in low gear warns roubini.jpg Business

High-profile economist and CEO of Roubini Macro Associates, Nouriel Roubini, has issued a stark warning for the world’s advanced economies including the U.S., U.K., and France. In a recent interview, Roubini predicted that these economies will not return to 2% inflation in the near term. Instead, due to "structural changes" to the global economy, inflation is set to be much higher in the long run, a shift that could significantly impact financial markets and economic strategies worldwide.

Roubini, also known as "Dr. Doom" for his often pessimistic economic predictions, highlighted a number of supply-side factors that will weigh on economic growth and increase production costs. These include geopolitical conflict, aging populations, immigration restrictions, and the ongoing pandemic. On the demand side, Roubini anticipates increased spending due to the need to address inequality, climate change, and the challenges posed by globalization and artificial intelligence. This convergence of factors, Roubini asserts, signals the end of the era of low inflation and stable growth, with the new normal potentially hovering between 3% and 4% for advanced economies. This comes as a notable shift from previous economic landscapes and calls for a close examination of economic policies and strategies moving forward.


Roubini Predicts Higher Inflation; A New Normal

In an interview on Bloomberg Television, renowned economist and CEO of Roubini Macro Associates, Nouriel Roubini, stated that advanced economies such as the U.S., U.K., and France are unlikely to return to 2% inflation in the near future. Roubini, popularly known as "Dr. Doom" for his often bearish predictions, said that structural changes in the global economy suggest higher inflation rates in the long term.

Factors Impacting Inflation

Roubini pointed out various supply-side factors that could negatively impact economic growth and increase production costs. These include geopolitical conflict, aging populations, immigration restrictions, and the continued effects of the pandemic. On the demand side, he expects higher spending as societies grapple with inequality, climate change, globalisation, and the emergence of artificial intelligence.

The End of Low Inflation and Stable Growth

According to Roubini, the era of low inflation and stable growth is over. "The new normal may be somewhere between 3% and 4% for advanced economies over time — of course not overnight," he stated. This prediction follows Roubini’s record of bearish forecasts, including his accurate prediction of the 2008 financial crisis.

The Risks of Central Banks’ Inflation Strategies

In a column for MarketWatch in late June, Roubini suggested that a short and shallow economic contraction over the next year has become more probable. He warned that if central banks’ attempts to control inflation lead to severe economic and financial instability, policy makers worldwide may allow inflation to surpass targets. This could risk destabilising inflation expectations and causing a persistent wage-price spiral.

Market Reaction to Roubini’s Predictions

In the wake of Roubini’s predictions, U.S. stocks saw modest gains at the start of the week. Investors are keeping a close eye on the Federal Reserve’s September policy meeting, with traders pricing in a 99% chance that the Federal Reserve will maintain its current interest rate, according to the CME FedWatch tool.

Takeaways

Roubini’s prediction of a new normal of higher inflation rates in advanced economies could have profound implications for economic policy and financial markets. While his bearish views aren’t universally accepted, they serve as a cautionary perspective amid current economic uncertainties. As economies grapple with the aftermath of the pandemic and the effects of climate change, it’s more important than ever to consider diverse economic viewpoints and prepare for various potential scenarios.

Crive - News that matters