According to analysts, global inflation is likely to keep climbing in the distant future. The main driver of inflationary pressure will be strained relations between China and the United States (Chimerica), as well as between Europe and Russia (Eurussia).
Earlier, global inflation remained low thanks to two cheap commodities - Chinese goods and Russian gas. However, given the latest events, these two pillars that restrained inflation for a long time no longer exist. Market strategists at Credit Suisse Bank believe that the era of low global inflation is coming to an end.
They highlighted 3 main reasons, which kept inflation at bay:
1) cheap labor force (mainly migrants), which helped maintain stable nominal wages in the US;
2) inexpensive Chinese goods, which facilitated the growth of real wages and moderate stagnation of nominal ones;
3) affordable Russian gas, which ensured the energy stability of European states.
However, inflation will hardly slow down markedly in the coming decades, Credit Suisse warns. The odds of a noticeable drop in current consumer prices are also rather low. Apart from the above-mentioned reasons, rising public debt in countries worldwide is also fueling inflation. Yet, high inflation is considered an effective way to reduce public debt.
Analysts have also coined terms for describing relations between China and the US - Chimerica and Eurussia for geopolitical tensions between Russia and the EU. As the political arena is fractured now, countries, especially the opposing ones, are looking for powerful allies. The most significant economic alliance has been made between Beijing and Moscow. Sometimes powerful allies unite into large groups, e.g., Turkey, Russia, Iran, China, and North Korea. Hence, inflation could be taken under control only if the world’s powerful countries stop their rivalry. At the same time, analysts note that a stable economic world order needs a hegemon. Without a single state dominating the world power, there will be no stability.
Since the coronavirus outbreak, global inflation has begun to soar. The situation was aggravated by the Russia-Ukraine conflict. Consumer prices also spiked following tough anti-Russian sanctions, which triggered the sharpest price increases in the EU, the UK, and the US. Food and utility prices have reached their highest ever levels. Earlier, the IMF called on the world's central banks to take all necessary measures to rein in galloping inflation.
