World'6D risk' changes accounts in fight against global inflation

‘6D risk’ changes accounts in fight against global inflation


global economyWhile going through a process in which inflationary risks are talked about more than deflationary risks, new type of coronavirus The supportive policies implemented during the (Covid-19) epidemic and the reshaped world order indicate that the issue will remain on the agenda for a long time.

global economic crisis Although tried-and-tested practices are used in the literature for the solution of the problems that emerged in the period, it is critical to address the unique problems of the period in solving the knots.

In the unprecedented Covid-19 crisis, while the unconventional policies adopted by the central banks during the 2008 global economic crisis were resorted to, the unique dynamics of the process brought inflationary pressures to the agenda in many countries that have been facing deflationary risk for decades.

Although the ongoing “currency wars” between the world’s two largest economies, the USA and China, are less pronounced with the effect of the changing agenda in the post-Covid-19 process, it is known that China has not given up on its aim of “internationalizing the yuan”.

US and European central banksThe cumulative demand effect, accompanied by public incentives and the transition to the normalization process, caused inflation to reach high levels in many countries.

Analysts state that, unlike the previous ones, the “closure” solution applied in the solution of the Covid-19 crisis caused disruptions in the supply chain, and in addition, climatic conditions increased supply-side pressures, especially on the commodity side.

Especially normalization processPointing out that the increase in consumer expenditures after the transition to the economy also fed the demand-side inflationary pressures, analysts predict that the fight against inflation will remain on the agenda for a long time, even if the support of central banks begins to withdraw in this process where the world trade order is reshaped.

Although tried-and-tested practices are used in the literature to solve the problems that arise during the global economic crisis, it is critical to focus on the unique problems of the period in solving the knots.

“We have an inflationary game changer”

While the debates on how long the global inflationary pressures will continue and its reflection on monetary policies continue, “Delta variant”, “Dignity of finance (financial prestige)”, “Deglobalization”, ” The “6D” risk factors, which represent the initials of the terms “Dominance”, “Disarray (confusion)” and “Dollar (dollar)”, are expected to keep the fight against inflation on the agenda for a long time.

While it is stated that the Delta variant, which is shown as the first of these, keeps the risks related to the effects of the epidemic on the economy alive, it is stated that this situation will feed the inflationary pressures by staying on the agenda for a while.

It is stated that the second risk factor that supports inflationary pressures is the incentives provided by governments to protect their financial reputation.

Nordea Market Global FX Chief Economist Andreas Steno Larsen, in his assessment to the AA correspondent, said that financial dignity was reintroduced into government policies during the Covid-19 outbreak, and bailout packages were provided for almost every sector and citizen in many countries.

Analysts state that, unlike the previous ones, the “closure” solution applied in the solution of the Covid-19 crisis caused disruptions in the supply chain, and in addition, climatic conditions increased supply-side pressures, especially on the commodity side.

Pointing out that this situation is a result of the 2008-2011 global economic crisis, Larsen made the following assessments:

“Policymakers always apply the lessons learned from the previous crisis in new crises. In retrospect, it was a good idea to directly support demand with incentives after 2008. Therefore, incentives were the first weapon used in the Covid-19 crisis. But the problem is that COVID-19 A crisis in which supply-side pressures are felt more than demand. There are signs that bailout packages will continue even if they are not needed in many countries. This means the continuation of the increase in public debt. Monetary expansion is not inflationary on its own, but these governments continue to run deficits and reduce the money stock circulating in the economy. “The situation changes when it increases in price. So we have an inflationary game changer in line with the combination of monetary expansion and public incentives.”

“The dominance of the employment market has completely disappeared”

While distancing from globalization is among the risk factors that will keep inflationary risks alive, it is stated that governments will not avoid incentives in order to bring their countries to an important position in the reshaped supply chain during the Covid-19 process, where global integration has decreased.

The element of dominance among these risks represents the dominance lost in the labor market with the incentives to meet the demand during the supply-side Covid-19 crisis.

The cumulative demand effect, accompanied by public incentives to the monetary support programs led by the US and European central banks, and the transition to the normalization process, caused inflation to reach high levels in many countries.

Capital Economics Senior US Economist Michael Pearce, in his assessment of the inflationary effects of the lost dominance in the labor market, said, “In the period when the production processes completely stopped, incentives such as salary supports, tax advantages for employers and dismissal bans completely lost dominance in the labor market where there was less mobility. It has not opened a position and unemployment has seen historically high levels in many countries. It is obvious that the current problems in the employment market will remain on the agenda and it will take years to return to the period before 2019. I believe that the mismatches in the labor market will continue until the end of 2022, this will put pressure on wages and have an upward effect on core inflation. I expect it to continue.” used his statements.

“The impact of weather conditions and political turmoil on commodities is much stronger in 2021”

Political turmoil, which feeds geopolitical risks, especially in Afghanistan and South Africa, has an upward effect on product prices. Food prices, which have already risen due to disasters such as drought and flood, are among the factors that feed inflationary pressures with the effect of the turmoil.

Zafer Ergezen, a futures and commodity markets expert, said: “Weather conditions have been very influential on commodity prices for the last 2 years, but this effect became much stronger in 2021. On the one hand, heat, on the other hand, cold, floods and hurricanes, almost all There is a similar trend in agricultural commodity prices. When political turmoils are added to these, upward pressure on commodity prices has been felt significantly. Disputes between the USA and China have also directly affected commodity prices in recent years. When we consider all these together, both political turmoil and weather conditions affect commodity prices. While there are important variables, their reflections on inflation seem to be on the agenda for a while.” said.

“The yuan will not be able to challenge the dollar for a long time”

Although the ongoing “currency wars” between the world’s two largest economies, the USA and China, are less pronounced with the effect of the changing agenda in the post-Covid-19 process, it is known that China has not given up on its aim of “internationalizing the yuan”.

While distancing from globalization is among the risk factors that will keep inflationary risks alive, it is stated that governments will not avoid incentives in order to bring their countries to an important position in the reshaped supply chain during the Covid-19 process, where global integration has decreased.

China, which has made many moves to end the US domination in global trade, especially in the last 3-4 years, has loosened the restrictions on the financial system in order to expand the yuan and use it as a reserve currency, while reducing its exchange rate control.

While it is predicted that China’s efforts to internationalize the yuan in question may lead to less disinflationary exports, it is stated that a weaker dollar will cause inflationary pressures in the USA to remain on the agenda.

Professor at Harvard University. Dr. Jeffrey Frankel, in his research on the subject, said, “The internationalization of a currency depends on the economic size, confidence in the currency and the size of the financial markets. Looking at China’s current position, there are not many obstacles to the internationalization of the yuan, but there is still a long way to go. The Chinese government, He underestimates the deepening of financial markets, despite actively promoting the overseas use of the currency, especially after 2010. Therefore, the yuan will not be able to challenge the dollar for a long time.” used his statements.

Nordea Market Global FX Chief Economist Andreas Steno Larsen emphasized that China’s national income and its role in world trade are gradually increasing, so it is natural to expect the yuan to become widespread in trade.

Explaining that the increase in demand for the Chinese yuan will reduce the appetite for the dollar and lead to a continuous dollarization in global foreign exchange reserves, Larsen said, “This is a process that is under construction gradually.” said.

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