News
gla_wpadmin  

Interview with Laurence Boone: OECD chief economist warns: “Inflation is in a highly uncertain phase”

Berlin, Frankfurt, Paris Laurence Boone, chief economist at the industrialized countries organization OECD, believes that inflation may have reached its peak. However, it warns of risks that could cause sustained increases in prices. “The wage development harbors great uncertainty for inflation,” Boone said in an interview with the Handelsblatt.

The first wage increases can already be seen. “The question now is whether this is a one-off effect or whether it will lead to a lasting trend,” explained the Frenchwoman. That is difficult to predict and will depend crucially on further communication by politicians as well as companies and trade unions.

At the same time, Boone believes demographic change is a possible inflationary factor, as the decline in the workforce could result in higher wages and prices. Employment of people over 60 is declining, while life expectancy is increasing: “That no longer fits together.” Boone suggests a retirement age of 70 years.

With a view to the debate on European fiscal rules, she urged caution. “Governments need a plan to put national debt on a sustainable path in the long term,” said the macroeconomist. In addition, some governments have neglected urgently needed structural reforms, pointing out that they could not afford it: “This excuse no longer applies.”

Top jobs of the day

Find the best jobs now and
be notified by email.

Read the whole interview here:

Ms. Boone, after months of excitement about higher inflation, concerns are flaring up about stagflation, a combination of rising prices and weak growth. How likely is such a scenario?
There are certainly reasons to be concerned about higher inflation. But we are currently far from stagflation. Most economies are catching up with the trend from before the corona pandemic when it comes to growth.

How acute are the concerns about higher inflation?
From my point of view, this is limited. I think the high point has already been reached or will soon be reached. After the pandemic, it was easier for consumers to quickly spend more money than for companies to offer more products or services again. That has created this imbalance that is driving prices. The sharp rise in energy prices also play a special role. If they normalize again, inflation shouldn’t get too high in the medium term.

But what about the second-round effects, especially the risk that higher prices lead to higher wages – and vice versa?
That is something we have to watch very carefully. The development of wages harbors great uncertainty for inflation. So far we have seen wage increases, especially in the low-wage sector and in the logistics industry, i.e. in areas where they are absolutely desirable. The question now is whether this is a one-off effect or whether it will lead to a lasting trend.

What do you expect?
That is now difficult to say and will depend crucially on further communication from politicians as well as from companies and trade unions. Inflation is in a highly uncertain phase for that. Most of them are aware of this, however, so I am currently not assuming sustained high inflation rates.

Role of demographic change

This could change structurally in the future. Demographic change could result in fewer people in employment and thus higher wages and prices.
Indeed, we see employment drop dramatically after the age of 60. At the same time, life expectancy has risen to around 80 years in many countries. That no longer fits together, after all, most of us didn’t start our professional life at the age of 16.

But we don’t want to work until 80 either, do we?
No, but maybe up to 70.

graphic

The US Federal Reserve has already initiated the turnaround in monetary policy. Should the European Central Bank (ECB) do that too?
There is hardly any answer to that, the ECB is in a highly complex situation. Inflation in Europe has long been too low; now it is too high. The ECB wants to avoid mistakes it has made in the past. Unfortunately, there are two possible mistakes – reacting too early or too late. Today’s development, an extraordinarily strong recovery after the Corona crash – there is no role model for that.

Europe’s crisis management

How does the situation in Europe differ from that in the USA?
In Europe there are automatic stabilizers via the social system, as well as state support for maintaining jobs. The USA does not have a comparable system, which is why developments there are subject to greater fluctuations.

Have the ECB and the governments reacted correctly to the crisis?
We had very good crisis management in Europe and we can be proud of that. The financial policy response was correct.

But with the consequence of high indebtedness.
It is now important that the money is spent wisely and responsibly. Some governments have neglected much-needed structural reforms, saying they cannot afford it. This excuse no longer applies.

graphic

What exactly do you mean by being smart and responsible?
For one thing, it depends on where the money goes. Important areas are certainly digitization and the switch to renewable energy. To do this, we not only need public money, but also incentives for private investments. It is important, however, that there is no greenwashing of energy. And then fiscal management needs to be improved. Governments need a plan to put national debt on a sustainable path over the long term.

Debt brake in Germany

And that within the framework of the EU-wide Maastricht criteria, which stipulate a maximum of 60 percent debt and three percent budget deficit in relation to gross domestic product for the member states? Or should these be reformed, as some are calling for?
I believe that the detailed regulations are not decisive. It is more important that there is credible long-term planning. Governments are responsible not only for today’s citizens, but also for those of the future.

How can this planning work?
A good example, in my opinion, is the central planning office in the Netherlands. This creates very transparent scenarios of the effects that various economic measures could have. They even do it before elections based on the party programs – so that the citizens know what they are getting into.

In Germany there is an emotional debate about the national debt brake.
I do not want to interfere in this debate in detail because it is also about cultural determinants. What is clear, however, is that Germany has managed to operate a controlled fiscal policy in recent years. The switch to renewable energies and the digital revolution are now new challenges that only work with huge investments. That must also be clear to everyone in Germany. A reform of the debt brake may be necessary for this, but spending revisions and the long-term financial planning mentioned above are also required for this.
Ms. Boone, thank you very much for the interview.

More: Germany needs 580 billion euros for climate protection, digitization and education

Reference-www.handelsblatt.com

Leave A Comment