The global supply chain rearrangement in response to the pandemic is expected to provoke higher and more persistent inflation in developed countries than forecasts, with possible very negative implications for the prices of riskier assets in the global financial market.
The forecast is from Mohamed El-Erian, chief economic adviser at Allianz and former president of asset manager Pimco.
According to the expert, the inflation caused by bottlenecks on the supply side should remain present for a while, as the mobility restrictions generated by the coronavirus led to a search by companies for more local supply chains.
“Companies are looking for more resilience, instead of efficiency,” stated El-Erian, during an event organized by the investment bank Bradesco BBI this Thursday (17th).
In this context of a new organization of global trade, which is still ongoing, the view regarding the temporality of inflation, defended by the market, is not shared by the specialist.
“We will have inflation well above that predicted by economists and central banks next year,” said El-Erian.
He said that there is already enough evidence regarding permanent changes in the behavior of individuals and companies due to the pandemic, which have been the main responsible for the current inflation and that these changes will continue to be present in the scenario.
The risk of the Federal Reserve (US central bank) having to raise the US interest rate at a pace above the forecast is, therefore, a point of attention that needs to be on the investors’ radar, said the expert.
El-Erian said that most central banks in developed countries are increasingly behind in the process of raising interest rates to control inflation and the expectations of financial agents.
“Markets have been completely distorted by years of central bank intervention.”
Last week, St. Louis Fed Chairman James Bullard said he expected two US interest rate hikes in 2022. US inflation hit 6.2% in the 12 months ending October 2021, at the highest levels in 30 years.
El-Erian also stated that emerging countries are the most vulnerable to a scenario of reduction in fiscal and monetary conditions in global terms, and that, even for that reason, many of them, like Brazil, have already started the process of raising interest rates.
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