Daniel Moss’s View to 2022: The New War on Inflation

(Bloomberg Opinion) -- What to expect in 2022:

The coming year may lay the ground for an extended period of global growth. That’s if central banks don’t stymie the expansion to combat an uncomfortable jump in prices. From Australia, hailed before Covid-19 as a paragon of economic virtue, to the U.S., U.K. and euro zone, officials have been blindsided by accelerating inflation. They began 2021 with the pace of price increases benign, as it had been for the past decade, so much so that officials encouraged a bit more inflation. They fought the last war. Will policy makers fight the battle in front of them now — sustaining the recovery in the face of omicron — or engage in a rearguard action against the big story of the prior 12 months? The stakes are especially high in Asia, where pandemic restrictions are more comprehensive and have lasted longer than in other parts of the globe. Once seen as cruising to global economic supremacy, China is rapidly cooling. Longer-run issues also gnaw at the region’s dynamism. A major one is demographics: Birth rates are well below levels required to sustain populations, while immigration remains a hot-button issue.

From the Year Behind Us:

What ‘The Wizard of Oz’ Tells Us About Inflation: It’s getting harder to take central banks at their word. Much of the post-Lehman era has been devoted to perfecting the art of “forward guidance,” the idea that officials would tell you what they will do with interest rates months or even years before they get around to actually doing it. The pronounced spurt in inflation, and the unpredictability of the virus, have rendered much of this mute. Policy makers aren’t epidemiologists — they don’t know where the virus is going. That means data dependency is back with a vengeance.  

China Is the First Crack in the Covid Recovery:  For decades, you could almost set your clock by consistently strong gross domestic product reports from Beijing. The idea that a global upswing could happen that left China behind was scarcely conceivable. Yet the world’s second-largest economy is now faltering. The great divergence between Washington and Beijing this coming year is likely to be in the arena of monetary policy. The People’s Bank of China is easing while the Federal Reserve is withdrawing stimulus.

Singapore’s Reopening in the Age of Omicron: As the city-state wrestles with opening its borders, the line that really matters isn’t in an airport. It’s a bridge that stretches less than a mile across the Strait of Johor. Singapore imports power, water, food and — critically — people from Malaysia, the neighboring country with which it was joined for two years in the 1960s. Land travel’s success and failure will say a lot about the appetite wealthy, highly vaccinated economies have to truly open. Live with Covid-19? Sure. But how much of the disease, and what level of risk, can they tolerate?

The RBA Is Counting On a Healthy Dose of Isolation: At the start of 2021, it looked a safe bet that Reserve Bank of Australia Governor Philip Lowe would be the only chief in the bank’s six-decade history not to raise rates during his term. Now, only a high degree of isolationism can keep Lowe from tightening before his seven-year mandate ends in 2023. He is counting on inflation remaining lower than in many other advanced economies, something markets are challenging. Strong jobs reports may see the RBA retiring quantitative easing in February. Some economists say a hike in the benchmark rate isn’t far behind.

South Korea Needs More Babies and Immigrants: Seoul greeted the year by recording the country’s first annual population decline. Unfortunately, the go-to solutions — policy incentives to have more kids and immigration — are meeting some practical challenges in the Covid-19 era. South Korea’s problems aren’t unique. While Japan has long been the poster child for profound demographic changes, similar shifts have been afoot in elsewhere in East Asia. China, once seen as a limitless pool of cheap labor, now has a fairly tight job market. Hong Kong and Taiwan have very low fertility rates. In Singapore, the population has declined for two consecutive years. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.

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