Speaking on CNN International’s “Quest Means Business” on Friday, economist and president of Queens’ College, Cambridge, Mohamed El-Erian, said it was increasingly difficult to bring inflation back to normal. 2% and that overall inflation would “increase with what happens in the oil market”. » And that due to the “energy transition” and other factors, we cannot realistically achieve a 2% target without crushing the economy and we should abandon the 2% inflation target .
El-Erian said: “So we are in the last mile. The last kilometer was going to be tricky, but it’s getting trickier and trickier. We have already seen headline inflation fall from (3)% in June to 3.7% in August, and it will increase further with what is happening in the oil market. It therefore becomes more delicate on this last kilometer. And the risk is either inflation on one side or a serious economic downturn on the other. There is a path between these two, but it’s a pretty narrow path.
Later, he said: “We are experiencing major supply-side shifts… labor markets are experiencing a skills mismatch, businesses are seeking to diversify supply chains and we are facing an energy transition. In a world like this, 2% is not the right goal at the moment.
Host Richard Quest then retorted: “I can agree with you, but you can’t change the target. You can’t move the goal posts in the middle of the match, especially when you’re losing. And this is what it would look like.
El-Erian responded: “I agree, and I think we’re going to end up doing it implicitly, not explicitly. So, by the end of the year, I think the central bank — well, the central banks will have a very simple choice: either you go for 2% and crush the economy, or you promise us 2%. later, you promise us that the destination is ultimately 2%, but you continue on a 3% journey. And I think that between these two choices, we are more likely to find ourselves in the second than in the first.
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