Stagflation-light can still sweat policy makers: McGeever

Orlando, Florida, 20 February (Reuters) – Policy makers from all over the world may not like the word ‘stagflation’, but they are going to hear too much if import tariffs threatened to open a global US President Donald Trump. Are giving Business war.

Bank of England Governor Andrew Bailey said earlier this month, “I said earlier this month, Bank of England Andrew Bailey.” This is not really a particularly, clearly, accurate meaning. ”

That is right about ambiguity. Stagflation was first coined in the 1970s to describe the continuous economic stagnation of western economies and the traumatic mixture of inflation on the industrial scale. But now it is used to mark almost any example of both bottom-trend growth and up-trend inflation-innocently a little one. ,

Even this more medium version of the dreaded economic disease can cause severe headache for policy makers whose blunt equipment is either designed to promote growth or promote inflation – both at the same time Not in And in an agreement with economists that stagflation may be from tight-for-toat conservationist trade policies, Belly will not be the only policy maker with a furged broad this year.

On Wednesday, a mixture of economic indicators and policy maker comments put a spotlight on the stagflation threat.

The minutes of the Federal Reserve’s 28-29 January policy meeting revealed that the firms are willing to pass on high-input costs from tariffs to their customers, which means that the risk of inflation appears reverse. This reminded investors last week after the January retail sales shock that the American consumer is not invincible, even though development is still catching quite well.

And things can be very bad from here. Pimco’s Tiffany Wilding estimates that Trump’s proposed tariffs on Mexico, Canada and China may increase US inflation by 0.8 percent and increase by 1.2PP in the first year.

Meanwhile, Britain’s data showed that last month inflation had well accelerated the 2% target of BOE, well over 3% expected. This comes when development is best cooling, and the worst is flat-line.

Morgon Stanley and HSBC economists recently cut their 2025 UK GDP growth forecast by 1.4% to 0.9%, and BOE said that it hopes that this year is 3.7% at the end of this year at the end of this year. The beginning will increase by 3.7%. Bailey and colleagues are in a tight place.

And appreciating, the two top policy makers of the European Central Bank underlined the two sides of the debate how far, if at all, the policy should be reduced.

ECB Board member and vocal Hawk Isabel Schnabel argued that a “stagnation or stop” could come to cut the rate of the bank, while the Italian central bank chief Fabio Paneta argued that development could be weaker than fear. .

Perhaps the case for ECB cutting rates is below ‘neutral’, as many observers began to build, not so clear after all.

These indications are dazed with the latest Global Fund Manager Survey of Bank of America, which shows that about 60% of the respondents believe that ‘Stagflation’ will best describe the world economy in the next 12 months – the most in seven months Large percentage.

BNP Paribas strategists said stagflation risk in American markets is decreasing. Since the inauguration of Trump a month ago, S&P 500 has frozen the new height, nominal and real treasury yields have decreased, and the yield curve is slowly flattened.

But if traders and investors – many of whom are already on ‘Stagflation Watch’ – think that development is stabilizing and inflation is not coming down, then they will work accordingly.

This may mean that shares and bonds can have a celloff, which increases the instability of the currency. Britain, which depends on the ‘kindness of strangers’ to plug down its large trade deficit, can be particularly weak among developed economies, even coming into contact with FX weakness and imported inflation Emerging markets.

The best advice for investors may be, if ‘flea’ remains high, be prepared for ‘stag’.

(The opinion expressed here is the author, a columnist for Reuters.)

(Editing by Jamie Macggever;