inflation

The year 2022 began as one of great uncertainty. A timid economic recovery cooled off in the third quarter of 2021, and the US economy, with its gigantic fiscal deficits, failed to pick up steam. Russia's tensions with Ukraine have grown, and there needs to be a sense of how it can be solved. China has grown steadily, and the Asian countries have performed well, counterbalancing the slowdown in the G7 economies. Inflation rose sharply in the US and had no ceiling. Against this backdrop, year 22 began with surprises and a realisation. The surprise was that their currencies depreciate when the Fed moves the interest rate for the first time if the other central banks do not do so simultaneously. That cost the Euro a 23% drop against the dollar. Second, the addition of economic sanctions against Russia over the Ukraine operation became the opportunity of a lifetime for China to consolidate an Eastern financial architecture. Finally, with the world already fragmented, the US opted firmly for import substitution policies and the de-globalisation that goes with them; while the Asian bloc led by China is advancing with its growth and globalisation.

In January 2022, the IMF predicted a year of low growth with high inflation. Since then, the IMF has twice lowered its projections giving a gloomy outlook for global growth. OBELA estimated that the FED and the European Central Bank were in a dilemma where they would either ride with high inflation and some recovery or use the conventional monetary instruments of raising the interest rate and knock down the fragile consumption and investment dynamics to bring down inflation. There was a difference between the Fed having a monetary problem and the ECB recognising the geopolitical inflation issues. The result has been that both decided to raise interest rates and reduce liquidity, with predictable consequences.

After being postponed for two years due to the COVID-19 pandemic, the World Economic Forum in Davos finally took place. The central agenda of world leaders and business leaders revolved around four points, climate change, rising inflation, Russia's special military operation and how it aggravated the energy and food crisis. 

Headlines are abuzz with the return of inflation, which, according to some measures, is now reaching 40 year highs. Considering that vanquishing inflation is supposed to be the one undisputed achievement of neoliberalism, why is it rising? Many explanations – from excessive money creation to disrupted supply chains to tightening labour markets and a post-lockdown surge in demand are offered.

The view that it would be a short term affair is giving way to a more sobering assessment of its persistence, particularly since geopolitical conflict gave inflation a booster shot. As for its solution, one thing is clear, dealing with it as Paul Volcker famously did in the late 1970s is not a politically affordable option for governments beholden to elites whose outrageous fortunes depend on low interest rates.

This panel will seek to examine this phenomenon by asking question such as why is inflation rising? Can we expect it persist? What are the major policy-options being discussed and what are their political implications of each? How should socialists think about this new problem?

Since the late 2020s, the world began to experience a sustained rise in inflation that has not stopped. As the outbreak of the COVID-19 pandemic began to subside, the world experienced a sustained increase in price levels that has not stopped. The Russian military operation on Ukrainian territory has become a further force pushing up prices globally. While several commodity-exporting countries see rising commodity prices as an opportunity to improve their external economic balances, they will also have to face the pressure that prices will put on them.