The past 8 months of 2008 have witnessed a grave global economic situation featuring untamed inflation which seems to signal that after five years of incessant increase, the ‘golden period' for the global economy has come to a halt. Even with the global economic cycle not in synchrony and pressure from inflation varying country to country and region to region; runaway inflation, spurred by the prices hikes in food, petroleum and bulk commodities, occurs worldwide and its influence mounts to a global scale.
Currently, global inflation is spiraling up to a ten-year record high, which has posed a challenge for the entire world. A report recently published by the U.S. Department of Labor indicated that the CPI in July shot up by 5.6 percent over the same period last year, a record high since January, 1991, as the Consumer Price Index (CPI) has been considered the only gauge for inflation. EU statistics also showed that the Euro Zone saw a sharp rise in CPI of 4.1 percent over last year, setting a new record since 1997. Meanwhile, some emerging economies are also suffering considerably high inflation, which may become intolerable to some weak economies. The International Monetary Fund repeatedly stated that inflation had already become a global economic woe.
However, thorny economic problems facing the whole world can be attributed to much more than the specter of inflation. With the ever increasing economic strain from global inflation, the side effects induced by the U.S. sub-prime mortgage crisis, however, shows no sign of receding or ceasing. Instead, the economic crisis seems to be escalating. U.S. president George W. Bush also showed his disappointment saying, ‘Wall Street is drunk, and may remain so for a time.' Confronting dual pressures of economic slow down and rising inflation, bankers from around the world appeared to have been caught in a mess of monetary policies.
Bankers, along with policy makers, may need a crystal clear sense to produce quick decisions. But the complicated global economic status quo requires a package of strategies, or ‘combined boxing' should be put into practice in tackling the crisis. And the package should include monetary policies, fiscal policies and industrial policies. In the backdrop of today's conditions, nevertheless, only by continuing monetary policies and stabilizing the social anticipations of inflation can the global economy avoid being bogged down in stagflation.
To combat the common crisis, the new round of monetary policies recently staged by some major economic entities has shifted onto the same focus: curbing inflation. The European Central Bank raised the euro's interest rate in July. Accordingly, the British Central Bank and the U.S. Fed each have halted their period of interest abatement in the first half of the year. In the beginning of August, the three central banks declared in concert that the interest rate would be maintained at the current level, which conveys the message that developed economies have tended to regard curbing inflation as their primary concern while still monitoring the risks of a sluggish economy.
Admittedly, there has been some disparity in the pace of curbing inflation amid different economies, given the difference in economic conditions. It is remains a brutal challenge for global counter-inflation efforts, that in the future, different economies will have to enhance coordination in their macro-economic policies according to their specific economic conditions.
Although crude prices have somewhat slipped back, and the interest rate of the U.S. dollar has shown a tendency to be stable, global inflation continues to be a hard-line enemy endangering different economies. In effect, defeating it still requires time and joint efforts.
By People's Daily Online
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