The Inflation Myth
One of the most common bits of post-recessionary wisdom is that the world is on its way to a prolonged period of high inflation. With all that public stimulus money sloshing around the world, it's only a matter of time before prices start to go up. And indeed, that's exactly what's happening in China and India, mostly because they didn't experience much of the recession. But in the rest of the world, where economies really did nosedive, inflation worries may be overblown.
A recent Bank of America/Merrill Lynch report notes that in 18 of the world's 30 richest developed economies, core inflation (not including food and energy) is down from its peak in 2008, and continues to fall. High unemployment, empty offices, and shuttered factories have put extra slack in developed economies, meaning there's little pricing power for anyone, and thus little chance of inflation in the near term. "It's a myth that we're following a straight line from disaster to inflation," says BOA/ML economist Ethan Harris, who foresees two or three years of flat prices in the U.S., Europe, and Japan, which should provide some breathing room to get growth going. The risk is that policymakers will exit from stimulus programs too soon. The recovery remains weak; it still needs low interest rates and fiscal stimulus to get job creation up and bad bank loans back down. So while China and India may be ready to sprint, America's economy still needs physical therapy.
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Rana Foroohar is the deputy editor in charge of international business and economics coverage for Newsweek. She conceives and edits a weekly section of breaking news stories, features and guest articles. She also writes economic cover stories and opinion pieces, and pens a bi-weekly column on the global economy.
Foroohar oversees Newsweek's team of global correspondents and stringers, directing their reporting on the week's business news. She edits regular columnists such as hedge fund manager Barton Biggs, Morgan Stanley emerging markets head Ruchir Sharma, Yale professor Jeffrey Garten and PIMCO CEO Mohamed El-Erian. She is in charge of economic coverage for Newsweek's annual Davos special issue, which features pieces by world leaders and economic thinkers, and also chairs panel discussions while at the World Economic Forum in Davos.
Prior to taking this New York based position in 2007, Foroohar spent six years as Newsweek's European Economic Correspondent based in London, covering Europe and the Middle East. During this time, she was awarded the German Marshall Fund's Peter R. Weitz Prize for transatlantic reporting. She has also worked as a general editor at Newsweek, a reporter for Forbes magazine, and as a writer and editor at various other national and international publications. Foroohar graduated in 1992 from Barnard College, Columbia University, with a B.A. in English literature. She is a life member of the Council on Foreign Relations.
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