Inflation Is Raging Because Globalization Is Fading
History shows that the power of central bankers and other policy makers to restrain wages and prices pales in comparison to the impact of grand tectonic forces.
Be careful what you wish for.
Photographer: Pascal Le Segretain/Sygma via Getty ImagesInflation prognostication tends to come down to reading statistical tea leaves. Friday’s report of strong US job growth looks like a sign of economic strength that keeps inflationary pressure high. Recent declines in commodity prices reassured some analysts that the danger could be receding.
This focus on short-term price movements and the resulting interest-rate manipulations of central banks is only natural. But it obscures larger tectonic forces that dictate inflationary trends over years, even decades, and that can’t be controlled by the US Federal Reserve or European Central Bank. Though there’s no shortage of causes for these cycles, one stands out: globalization. Understanding this connection can help solve some of the economic puzzles of recent years — and suggest what’s in store for the future.