Caught behind the play, monetary officials across the world are trying to make up ground with inflation-fighting tools, which are pretty blunt, as they typically create other shockwaves across global economies.
Financial markets believe central banks will get the landing wrong, leading to a recession without beating down inflation, and that’s had spectacular consequences on share and bond markets, with trillions of value wiped from their previous prices.
The markets say “stagflation”, while authorities want households to believe it will be a “soft landing”.
The US Federal Reserve is setting the pace with aggressive rate hikes, and it’s expected its policy-setting committee will opt for another jumbo-sized move in coming days.
Australia’s energy market turmoil, a mess of maxi-demand and disrupted supply, will make it more difficult for the Reserve Bank to do its primary job: fighting inflation, getting consumer price growth back into the 2 to 3 per cent comfort zone.
RBA governor Philip Lowe on Tuesday evening said inflation would peak at 7 per cent in the December quarter, then ease back towards target next year. That’s about double what economists were tipping only six months ago.
Lowe warned borrowers that more rate hikes would be coming, and probably larger in size than expected five weeks ago when the cycle commenced, but the RBA chief, a glass half-full man even in a crisis, said the economy was resilient, that there was a $250bn savings buffer and it was a great time to look for a job and keep a job. Should we trust him?
Just last month he reminded Australians that running this economy was more art than science, and that events could come at you fast and catch you out. “That’s embarrassing. We should forecast this better. We didn’t,” Lowe said of the policy debacle.
It’s a cold winter, but the heat is on the RBA to take us out of emergency settings, kill off inflation, and not blow up an economy in revival mode.
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Central banks have been monstered by the reality of surging inflation, which is being driven by demand for energy, supply snarls for goods and food, Russia’s war on Ukraine and wage pressures from workers, who, naturally, want to preserve purchasing power.