Economist Rogoff: Inflation Is the Global Solution, Not the Problem

Thursday, 13 Jun 2013 08:23 AM

By John Morgan

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The world's major central banks should be thinking about spiking the punchbowl with even more monetary easing — not dialing it back — because inflation could help revive the global economy, according to Harvard economics professor Kenneth Rogoff.

In a media environment where many pundits are calling for a tapering of Federal Reserve stimulus, Rogoff, in a column for Project Syndicate, takes the opposite stance.

"Weighed against the political, social and economic risks of continued slow growth after a once-in-a-century financial crisis, a sustained burst of moderate inflation is not something to worry about. On the contrary, in most regions, it should be embraced," he wrote.

Forbes Columnist:
‘Who the Hell Cleared This?’

Rogoff, a former chief economist for the International Monetary Fund, said the rationale for "moderate" inflation of 4 percent to 6 percent may not be as strong as at the outset of the 2008 financial crisis, but it would still be helpful to spur the slow recovery now.

"Five years on, public, private and external debt are at record levels in many countries. There is still a need for huge relative wage adjustments between Europe's periphery and its core. But the world's major central banks seem not to have noticed," he stated.

According to Rogoff, it would be a catastrophe if the recovery in the United States was stopped in its tracks by anti-inflation "shibboleths" and what he would consider a premature end to the Fed's quantitative easing.

As for Japan, Rogoff said that nation should not consider even a pause in its ultra-loose monetary policy in pursuit of some inflation. And in Europe, he said inflation would help accelerate a solution for Europe's commercial banks, where many loans are still far above market value.

The Financial Times joined Rogoff's chorus, saying inflation dangers are simply overstated.

Wage inflation is close to zero, unit labor costs are rising slowly and that exchange rates and commodity prices have stabilized in the United Kingdom, the United States and the eurozone, according to The Times.

"Even over the medium term, then, it is hard to believe inflation is more than a will-o'-the-wisp. ... A high rate may be a risk in the very long run — but right now the risk is that it may be too low."

Inflation in developed nations rose 1.3 percent in April, the least since 2009, according to the Organization for Economic Co-operation and Development, Bloomberg reported.

And consumer price increases were less than forecast in eight of 10 countries tracked by the Citigroup Inflation Surprise indexes in May.

Forbes Columnist: ‘Who the Hell Cleared This?’

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