BIS原高级经济学家:全球通胀是央行的错吗?
导读
新冠疫情引发的经济低迷与以往的经济衰退不同。疫情对服务业比对制造业的经济冲击更大。由于封锁,经济活动的减少和消费者价格指数以及核心通胀率的下降,促使政府采取措施避免全面崩溃。这些措施的重点在于稳定通货膨胀率和市场预期。有四种工具被央行广泛使用。第一是调低利率,以维持需求。第二是向金融机构贷款,向金融中介机构提供流动性,以便在借款人面临偿还困难时维持其生存。第三是资产购买和出售,以防止资产价格大幅贬值。第四是放宽直接影响金融中介机构和市场的监管要求,如中国人民银行使用的准备金要求等。
由于采取了诸多宽松政策,各中央银行的资产负债表显著扩张。全球通货膨胀率攀升至数十年来的最高水平。2022年初,几乎所有发达国家的通货膨胀率都超过了中央银行的目标。本轮的高通货膨胀率是由诸多因素导致的。首先,从新冠疫情衰退中复苏的速度异常之快。其次,新冠疫情导致总需求从服务业转向大宗商品。第三,供给跟不上需求的增长。全球价值链面临压力,而俄乌战争又进一步造成能源和其他大宗商品市场的供应紧张,引发了价格的大幅上涨和更大的波动。
各国中央银行对不断上升的通货膨胀做出了迅速的反应。美联储迄今为止已将联邦基金利率目标区间提高了1.5个百分点。除了提高利率,美联储大幅减持证券,使得资产负债表的规模缩小。这两项措施都将导致金融状况的显著收紧。欧洲央行承诺将通胀率降至 2% 的中期目标。货币政策应该使之前的非常态措施正常化。不同于美国和欧元区,由于增长面临下行压力,中国改变了紧缩政策,以刺激货币宽松。中国宽松的货币政策正在加强对实体经济的支持。从结构上讲,中国人民银行正有针对性地支持经济的关键领域和薄弱环节,包括绿色金融领域和易受疫情影响的中小企业。
时间丨2022年7月
作者丨赫伯特·波尼施 IMI国际委员、国际清算银行(BIS)原高级经济学家
英文原文如下:
Global inflation: the fault of central banks?
Herbert Poenisch, Member of International Committee, IMI, former senior economist, BIS
2022 Annual Report of the BIS
Source: BIS
Introduction
In the decade after the global financial crisis (GFC) central banks struggled with avoiding falling prices, uncharted waters for central banks. As a result of policy measures taken such as quantitative easing and interest rates close to the zero bound the ghost of falling prices haunted central bankers. What would this do to economic growth, where the traditional textbook interest mechanism was put out of action? Benign inflation dominated central banker’s concerns until the outbreak of the pandemic. All of a sudden demand dropped off a cliff, and authorities had to activate all policy levers to avoid a deep recession.
This article will follow the complexity of monetary policy decision making since the outbreak of the pandemic by extensively quoting the exact monetary policy decision as published by the BIS, the IMF as well as governors of the main central banks. Inflationary expectations had been anchored at low levels since the GFC. Once inflationary pressures resurfaced in selected sectors, such as in some services and commodity prices, these expectations were at risk of becoming unanchored by sudden reactions to events, which looked as temporary until the war in Ukraine broke out.
This article will address the monetary policy decisions taken during the pandemic, the resurgence of inflation during the pandemic, the supply disruptions and finally the contribution of the war in Ukraine. Surging inflation, a long forgotten phenomenon, engulfed advanced economies (AE) and emerging markets (EME) at the same time, although to a different degree. Was it the fault of central banks who expanded money supply too aggressively without realising the brewing inflationary storm as some pundits claim? Or was it the complexity of steering monetary policy during shifting tides? The complexity of inflation was analysed in depth in chapter II of the 2022 Annual Report of the BIS under the title: inflation: a look under the hood which is reproduced elsewhere in this issue.
The buildup of underlying inflation during the pandemic in 2020
The downturn triggered by the Covid19 pandemic has been different from past recessions. Service sectors reliant on face-to-face interactions have seen larger contractions than manufacturing. The drop in economic activity, in goods but mainly in services due to lockdown, together with the drop of inflation indicators into negative territory, consumer prices as well as core inflation, prompted the authorities to pull out all stops, fiscal and monetary to avoid total collapse. In terms of inflation, the effect of weak aggregate economic demand appeared to outweigh supply disruptions. Inflation in AE remained below pre-pandemic levels, in EME declined sharply in the initial stages of the pandemic.
As global economic and financial conditions deteriorated rapidly, central banks formed a critical line of defence. The massive policy support should avoid a further slide in economic activity. Fiscal discretionary revenue and spending measures amounted to close to 10% of GDP in AE with another 11% in various forms of liquidity support, including equity injections, asset purchases, loans and credit guarantees. The policy response was broad based, preventing a dysfunctioning of the financial system. Whereas fiscal measures were targeted at consumers and companies, monetary measures were targeted at supporting aggregate demand and financial intermediaries in their role as lender of last resort.
Central banks found themselves facing the Herculean challenge of reconciling a real economy where the clock had stopped with a financial sector where it kept ticking. Central bank actions in AE involved more diverse, larger scales of asset purchases and relending facilities, supporting credit provision to a wide range of borrowers. Central banks in EME responded by interest rate cuts, new relending facilities and also asset purchases. These aggressive measures played a vital role in supporting sentiment and preventing further amplification of the Covid19 shock through the financial system.
There were four types of tools available which were widely used.
The first line of defence was cutting interest rates to the lower bound in order to sustain demand. They also sent a powerful signal, which could help to shore up confidence in times of stress. In EME this could not be followed as stabilising the exchange rate often required raising interest rates to stem capital flight.
The second set of tools was lending to financial institutions, the provision of liquidity to financial intermediaries to sustain their survival in times when borrowers faced repayment difficulties. This includes repurchase operations, as well as standing facilities and discount windows. Targeted lending operations can be tailored to support funding in specific market segments. Central banks relied heavily on targeted lending operations to banks at low funding costs. These operations required that banks onlend the funds to firms. Many central banks, such as of China, Brazil, Japan, Singapore, Sweden, Switzerland and the UK set up new facilities, mostly targeted at small and medium sized enterprises (SMEs). Similar programmes were launched by the ECB, FED and BoK.
The third tool is outright asset purchases and sales in order to prevent a collapse of asset prices. The assets involved range from government bonds to private sector securities, such as commercial paper, corporate bonds, equity and foreign exchange. This tool was widely used by the FED and the ECB, but also the BoJ and the BoE. The FED was particularly forceful, committing to purchasing unlimited amounts of US Treasuries and agency mortgage-backed securities, and subsequently breaking new ground by buying municipal debt. The BoJ also committed to unlimited government purchases. The ECB launched the Pandemic Emergency Purchase Programme (PEPP) to narrow bond spreads. The purchases helped stabilise bond markets despite sharp increases in issuance as governments fought the pandemic.
The fourth tool were easing regulatory and supervisory parameters which directly affected financial intermediaries and markets. These included reserve requirements, used by the PBoC, but also capital and liquidity requirements and even capital flow management measures and accounting standards. Authorities softened capital and short-term liquidity regulations in most countries and encouraged banks to make full use of existing buffers above regulatory minima.
The importance of the financial structure merits special attention. In the past emergency lending was credit provision to banks. As capital markets developed and the importance of market-based finance increased, the reach of emergency lending broadened. Early in the Covid19 crisis, money markets came under acute strain. Central banks provided liquidity to money market mutual funds through banks.
Asset purchases also helped a wide range of market segments. A striking example of how far a lender of last resort may need to go in a more market-based system was the dislocation in the US Treasury market in early 2020. Highly leveraged players had to unwind their long Treasury positions in face of large margin calls. As dealers had limited capacity to absorb the securities, the FED responded with massive purchases of Treasuries.
Given the importance of the USD in international financial markets, it is not uncommon for USD offshore markets to come under stress in times of market turbulence. Many non-US financial institutions and firms cannot draw on a USD deposit base or raise funds directly in the US money markets, and are so reliant on FX swaps. During the early Covid19 pandemic the imbalance between demand and supply of USD widened significantly. In response, the FED acted swiftly. To ease USD funding, it utilised standing swap lines established during the GFC with five major AE central banks and reopened them for another nine.
As a result of adopting all these measures, balance sheets of central banks expanded markedly during the year, in the FED from 5% to 15% of GDP and the ECB from 4% to 8% of GDP, the BoJ from 5% to 12% and the BoE from close to 0 to 8%. The growth in monetary aggregates certainly by far outpaced the negative real growth rates, thus laying the ground work for future inflationary developments. Inflation, after all always is a monetary phenomenon. Was there a way of predicting this coming inflationary storm?
First signs of inflation in 2021
The key objective during the year was to assist firms and households affected by the pandemic. There were concerns about the lingering impact of insolvencies, persistent shifts in consumption patterns and shrinking global value chains. After acting decisively to pre-empt severe disruptions to credit intermediation and preserve market functioning at the onset of the pandemic, central banks provided further stimulus to aid the recovery. In AE they maintained asset purchase programmes and some, such as the FED made greater use of forward guidance. In EME the response varied according to economic forces. Some EME central banks lowered policy rates further. Others such as of Brazil and Turkey tightened in response to rising inflation. Several central banks also launched asset purchase programmes for the first time, generally to stabilise markets.
Banks globally weathered the recession surprisingly well. Most had entered the pandemic with relatively strong balance sheets after the regulatory reforms following the GFC. Bank capitalisation had increased in many countries in 2020, in part due to restrictions on shareholder payouts and greater flexibility in classifying loans and applying regulations.
The disinflationary effects of the pandemic continued through 2020. Lower aggregate demand, weaker labour markets and firm’s cost cutting more than offset supply constraints. Low inflation in China also reverberated through other economies due to the country’s large role in global trade.
In the course of 2021 supply pressures strengthened substantially and inflation picked up. After declining early in the pandemic, PPI inflation trended firmly upwards in several economies, most notably China, paralleling a steady recovery in commodity prices. Together with exchange rate depreciations, this led to higher inflation in a number of large EMEs. Inflation also rose in most AEs and in some cases exceeded central bank targets. As well as higher commodity prices, a rebound in other prices of some services, which had fallen sharply early in the pandemic, contributed to increased inflation in these countries.
As from early 2021, rapidly improving economic forecasts led to a sharp rise in sovereign yields in the AEs that then spilled over to EME yields. The steady increase in US bond yields reflected higher market-based inflation expectations. The brightening economic outlook, sustained by positive vaccine news, fiscal expansion and continued monetary accommodation, bolstered a ‘reflation trade’ in major AEs. China was an exception and saw financial conditions tightening noticeably, not least due to its domestic policy stance that aimed at containing credit growth.
One particular asset class, house prices soared in many countries during the period. Although a rise in house prices during a recession is not unprecedented, partly because of accommodative monetary policy meant to stimulate the economy also supports asset prices, increases during the period were unusually large.
In mid 2021 the BIS already envisaged a scenario of higher inflation and tighter financial conditions. They state that the impact on inflation was harder to assess. There are grounds to believe that any further increase would be limited and temporary. Central banks were not expected to react sharply to such a temporary spike in inflation. Headline inflation was projected to peak in the final months of 2021. The BIS cautions that given the strength of forces at play in the scenario, one could not rule out a larger and more sustained increase in inflation. Financial market measures of inflation rose quickly in a number of countries. Rising corporate insolvencies would be magnified through their impact on banks and other financial institutions. Corporations would have to contend with increased repayment obligations due to the large rise in borrowing early in the pandemic.
In response, central banks would face a delicate communication challenge. On the one hand there was a need to provide sufficient reassurance to avoid a market-driven pre-emptive tightening of financial conditions. On the other had this reassurance posed the risk of constraining central banks, making them unable to adjust promptly if the inflation was more persistent. At that stage some central banks had little choice but to tighten, such as in Brazil, Turkey and Russia. Should commodity prices continue to rise or global bond yields resume their climb, other central banks could feel compelled to follow suit.
A sustained rise in inflation in AE leading to an unanticipated withdrawal of monetary accommodation could have disrupted financial markets. EME would be especially affected from the resulting spillover effects through capital outflows and exchange rate depreciation.
Inflation expectations and supply shocks are crucial to understanding the inflation process. A key concern was identifying the conditions that cause recent inflation spikes to persist, leading to unanchored expectations and self-fulfilling inflationary spirals. Policymakers worried that the unprecedented policy support in response to Covid19 crisis may have reduced the room for monetary policy to manoeuvre thereby denting the credibility of central banks and possibly de-anchoring of inflation expectations.
During 2021 it also became clear that higher commodity prices were not a temporary phenomenon but here to stay. The original price shocks were multiplied through the commodities futures markets where financial conditions played an important role. They affect macroeconomic conditions through several channels.
The first is through inflation. Some commodity prices such as oil and wheat are closely linked to the prices of consumer goods such as petrol and bread. Others such as metal are key production inputs. Higher and more persistent inflation could eventually prompt a monetary policy response that lowers growth.
A second channel is through changed production patters, such as substituting expensive inputs with other production inputs, such as less efficient energy. This could lower growth in the short run.
A third channel is through terms of trade effects. Higher commodity prices provide a real income boost for commodity producers and a real drag for commodity importers. These spillovers of inflation are typically larger for commodity importers, where core inflation will also rise.
There were already substantial commodity price increases in 2021 which were exacerbated by the war in Ukraine in early 2022, which triggered a surge in commodity prices, notably oil, gas, food and metals. Prices remain well above pre-pandemic levels and the outlook for commodity markets remain uncertain as the war continues.
Inflationary expectations become more entrenched in 2022
As the World Economic Outlook of the IMF put it, inflation is expected to remain elevated for longer than in the previous forecast, driven by war-induced commodity price increases and broadening price pressures. For 2022, inflation is projected at 5.7% in AE and 8.7% in EME, much higher by 1.8 to 2.8 percentage points than projected earlier. Although a gradual resolution of supply-demand imbalances and a modest pickup in labour supply are expected, easing price inflation eventually, uncertainty surrounds forecasts. Worsening supply-demand imbalances, including those stemming from the war, and further increases in commodity prices could lead to persistently higher inflation, rising inflationary expectations and stronger wage growth. If expected inflation will be higher over the medium term, central banks will be forced to react faster than currently anticipated.
Anchored inflationary expectations provide for monetary policy manoeuvre, but how strongly they remain in place will depend on central banks keeping inflation in line with their stated objectives. Broad progress in the anchoring of inflation expectations during the decade before Covid19 seems to be paying dividends in the post-pandemic landscape. Despite the sharp jump in recorded inflation over past 12 months until mid 2022, long-term expectations have remained flat for most of the economies in an analysis by the BIS. This policy space will depend on how far policymakers succeed in confronting rising inflation, hence locking in their pre-pandemic gains in anchoring expectations.
In a striking break with the recent past, global inflation climbed to multi-decade highs. By early 2022 it exceeded central bank targets in almost all AEs, and had risen above 5% in more than three quarters. The share of EMEs with inflation above 5% was almost as high. Higher inflation was less prevalent in Asia. But even there, it generally rose above target as the year progressed, with the notable exception of China.
The flare-up in inflation came as a surprise to most observers. While at the end of 2020, forecasts were generally projecting inflation at or below central bank targets. Even in mid-2021, by which time inflation had already started to rise, most forecasters underestimated the extent or persistence of the increase. Contributing to the miss, the increase was initially concentrated in a narrow set of items, such as durable goods, food and energy. These price increases were widely interpreted as one-off or transitory relative price adjustments to pandemic-induced shifts in supply and demand. But inflation progressively broadened. By early 2022, growth in service prices, which tends to be more persistent, exceeded its pre-pandemic level in much of the world.
Higher inflation was due to a number of factors.
First, the recovery from the Covid19 recession has been unusually rapid, particularly in AEs. As a result the relationship between income support early in the pandemic and economic activity in 2021 was much more evident for nominal GDP than real output.
Second, the pandemic-induced rotation of aggregate demand to goods from services, especially contact-intensive ones, proved surprisingly persistent. As a result, inflation rose even as output remained below its pre-pandemic trend and labour markets showed spare capacity.
Third, supply failed to keep up with the surging demand. In particular, global value chains came under pressure. Supply was especially tight in energy and other commodity markets, triggering major price increases and higher volatility. The war in Ukraine further disrupted the global supply of products such as wheat, oil, gas, nickel, palladium and fertilisers.
In some EMEs central banks responded quickly to rising inflation. By early 2022 most EME central banks had started to remove accommodation. The PBoC was an important exception: it eased monetary policy as the economy softened and inflation remained subdued.
In AEs, central banks responded more slowly. Initially, many attempted to ‘look through’ seemingly transitory higher inflation. As the current year progressed, central banks wound back their forward guidance, signalling an earlier start of policy normalisation. The concrete steps taken by major central banks follow in the section below.
Higher inflation and the outbreak of the war in Ukraine also left an imprint on financial markets. Financial conditions tightened sharply, particularly from the start of 2022, as asset prices responded to the prospect of rising inflation and the resulting anticipated monetary policy tightening.
Policy reactions by main central banks, the FED, the ECB and PBoC
In his report to the US Congress in mid-2022 Chairman Powell stated that inflation remains well above the long-run target of 2 percent. Over the twelve months ending in April 2022, total personal consumption expenditure prices (PCE) rose by 6.3%. Even excluding the volatile food and energy categories, core PCE rose by 4.9%. Aggregate demand is strong and supply constraints have been larger and longer lasting than anticipated, and price pressures have spread to a broad range of goods and services.
With inflation well above the long-run goal of 2% and an extremely tight labour market, the FED raised the target range for federal funds rate at each meeting, resulting in a 1.5 percentage point increase in the target range so far. In addition to raising interest rates, the size of the FED balance sheet will be reduced by significantly reducing the holding of securities. Both these measures will lead to a significant tightening of financial conditions.
Similar to the FED, the European Central Bank (ECB) is facing headwinds from higher energy costs, the deterioration in terms of trade, greater uncertainty and the adverse impact of high inflation are expected to gradually fade. As a result, growth of 2.8% is projected in 2022 and 2.1% both in 2023 and 2024. Inflation has risen further, at 8.1% in May 2022. Energy prices were 39.2% higher than a year ago. Food prices rose 7.5% in May, in part reflecting the importance of Ukraine and Russia among the main global producers of agricultural goods. Prices have also gone up more strongly because of renewed supply bottlenecks amid recovering domestic demand. As a result, price rises are becoming more widespread across sectors and the underlying inflation has risen further.
As inflation is well above target, the ECB is committed to bring inflation back to its medium-term target of 2%. Monetary policy should normalise the previous extraordinary measures. First the asset purchase programme (APP) will end as of 1 July 2022. Secondly, interest rates will be raised by 25 basis points in July with another rise in September and beyond possible, if needed. Thirdly, the redemptions of the PEPP portfolio will be reinvested flexibly, depending on developments.
Differently from the US and the Eurozone, China has never used quantitative easing and recently reversed its tightening policy to stimulating monetary accommodation as there was downward pressure on growth.
In his speech to the Boao Forum in April 2022, Governor Yi Gang of the PBoC outlined China’s monetary policy response. China’s financial market is not immune to external shocks and the domestic Covid19 situation. China’s accommodative monetary policy is stepping up support for the real economy. By end March 2022 M2 and social financing expanded by 9.7% and 10.6% respectively. The PBoC contributed profits of RMB 1trillion to the central government.
Structurally, the PBoC supports key areas and weak links of the economy through targeted facilities. Monetary policy is focusing on Green finance, and also on SMEs which were vulnerable to the pandemic. Consumer prices have stayed in a moderate range with CPI rising 1.1% in 1Q22 and PPI rising by 8.7% recently.
Conclusion
Central banks have done the utmost during the pandemic to avoid a total collapse. These measures have saved households, small and medium enterprises, as well as big enterprises and the financial intermediaries. Importance was attached to anchoring inflation and stabilising market expectations. In view of persistent inflation, broadening from commodities and some services to the whole economy, threatening to trigger the price-wage spiral, central banks reversed course in early 2022. As governors of major central banks communicated their shift in policy, fighting inflation has started in earnest. They can be blamed for delaying a sharp U-turn, but not for the support measures taken during the pandemic.
Literature used
BIS (2020): A monetary lifeline: central banks’ response. Chapter II Annual Report www.bis.org
BIS (2021): Covid and beyond. Chapter I Annual Report www.bis.org
BIS (2022): Old challenges, new shocks. Chapter I Annual Report www.bis.org
BIS (2022): Inflation: a look under the hood. Chapter II Annual Report www.bis.org
ECB (2022): Speech by Christine Lagarde, President of the ECB, at the Hearing of the Committee on Economic and Monetary Affairs of the European Parliament, June www.ecb.int
FED (2022): Statement by Jerome H Powell Chair Board of Governors of the Federal Reserve System before the Committee on Banking, Housing and Urban Affairs, US Senate, June www.bis.org/speeches
Goel, Tirupam and Tsatsaronis, Kostas (2022): Anchoring of inflation expectations: has past progress paid off? In: BIS Bulletin No 51, March www.bis.org
Igan, Deniz, Kohlscheen, Emanuel, Nodari, Gabriela and Rees, Daniel (2022): Commodity market disruptions, growth and inflation. In: BIS Bulletin No 54, May www.bis.org
IMF (2020): Global prospects and policies. In WEO chapter 1 www.imf.org/publications
IMF (2021): Inflation scares. In WEO chapter 2 www.imf.org/publications
IMF (2022): War sets back global recovery. In WEO April www.imf.org/publications
PBoC (2022): Remarks by Governor Yi Gang at the Boao Forum for Asia, April www.bis.org/speeches
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