Central banks are at “the end of the beginning” in their battle against inflation, according to top Societe Generale economist Kokou Agbo-Bloua.
Agbo-Bloua argues that the factors contributing to inflation are complex and will require a sustained effort from central banks to bring prices under control.
One of the main factors driving inflation is the buildup of excess savings during the pandemic. These savings have given consumers more purchasing power, which has put upward pressure on prices.
Another factor is the war in Ukraine, which has disrupted supply chains and led to higher energy prices.
Finally, Agbo-Bloua points to “greedflation,” or the ability of companies to raise prices by more than is warranted. This is due in part to the fact that companies have been able to pass higher input prices on to consumers.
In order to bring inflation under control, Agbo-Bloua says that central banks will need to raise interest rates until they induce a recession. He believes that this will likely occur in the United States in Q1 of next year.
However, Agbo-Bloua does not believe that a recession is inevitable. He says that it is possible that central banks will be able to bring inflation under control without triggering a recession. However, he believes that this will be a difficult task.
Another economist, Nathan Thooft of Manulife Asset Management, agrees with Agbo-Bloua that a recession is not inevitable. However, he says that even if a recession is avoided, the global economy is likely to experience below-trend growth for some time.
“If forecasts are correct, it means that global GDP growth would come in 15.2% below trend, a scenario last seen during the pandemic in 2020 and, before that, in the 1940s,” Thooft said.
In conclusion, central banks are facing a difficult challenge in their battle against inflation. The factors contributing to inflation are complex and will require a sustained effort from central banks to bring prices under control. However, it is possible that a recession can be avoided, even if below-trend growth is likely for some time.