Morgan Stanley's expert: inflation surge in the world to be long-term

/INTERFAX-AFI, Frankfort-on-Main, June 18, 08/ - July 3, European Central Bank (ECB) is likely to increase the level of basic interest rate. However, the question is whether one or two increases enough to stop global tendency of prices growth, is said in the review of Ioakhim Phels, the chief economist on Morgan Stanley's debt market, which was also published in The Wall Street Journal. In May inflation in Euro zone made 3.7 % APR, which is maximum for 16 years. This summer it may accelerate to 4 %, which 2 times exceeds ECB special. Majority of experts, including staff of ECB, suggest that inflation is unlikely to return to comfort (for regulating bodies) level this or next year. Other worlds Central Banks confront the same, and often more significant problems. In Great Britain consumer prices index may increase to 4 % in nearest months, in USA it may overcome 5 % level in the current year. In a number of countries, including Russia, Ukraine, Turkey, SAR and Indonesia inflation pressure is more considerable. In more than 80 % of developed countries and countries with developing economy, in which the certain special level of inflation is set, the rates of prices growth exceed this level. According to conventional theory, the growth of prices on foodstuffs and energy resources totally explains inflation leap. Optimists think that in case of their fall, the total consumer prices index also fell; and anxieties on further acceleration of inflation will remain. However, prices growth is more than just temporary surge. We are the witnesses of shifting to the period of higher inflation in the world, which is the result of wrong global monetary policy, I. Phels considers. From the beginning of the nineties to last two years absence of regulation, globalization and acceleration of working efficiency's rate helped Central Banks to control inflation. Now, excessive regulation and protectionism return, globalization contributes to growth of prices on foodstuffs and energy resources and as working efficiency is downgrading. Stagflation has become new reality. Real motivation of inflation is not jump in prices, conditioned by high ask on energy resources and foodstuffs, but weak monetary policy of Central Banks, Morgan Stanley's economist marked. The main initiator of this situation for number of developed economics is USA Federal Reserve System and its aggressive softening of monetary policy in reply to credit crisis and also Japan Bank with its low interest rate. Acceleration of inflation in global economy is hardly a surprise. Prices on foodstuffs and energy resources just were the first to react on sharp weakening of monetary policy. Other goods and services are also likely to get up. Separate countries and regions may confront problems while defending from this global trend. Restraining of inflation will be possible if Central Bank will increase the rate significantly higher and local currency will get up as much as to compensate growing import prices. Morgan Stanley's analysis testifies that global acceleration of inflation influences prices growth on the national level. Growing market integration for recent 15 years contributed to this tendency appreciating. That's why, now inflation is more global, than country phenomena. [2008-06-19]