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Roubini and inflation: a challenge for major economies

Nouriel Roubini, esteemed economist and CEO of Roubini Macro Associates, has voiced growing concern: achieving a 2% inflation rate for major economies such as the United States, United Kingdom, and France appears to be a “daunting mission.” But what truth lies behind these words?

In a recent interview, Roubini highlighted how the “fundamental transformations” within the global economy point to a trend towards significantly higher inflation in the near future. This forecast is backed by multiple elements.

On one side, we face factors related to supply, such as geopolitical tensions, demographic aging, immigration restrictions, and the repercussions of the pandemic. These elements pose barriers to economic growth and lead to rising production costs. On the other side, an increase in demand-side spending is anticipated. People will be compelled to invest more to address social disparities, tackle climate challenges, overcome the complexities brought about by the pandemic, and counteract inequalities stemming from globalization and the advent of artificial intelligence.

Roubini’s words are very clear

Roubini’s stance is firm: “The era of moderation, characterized by inflation below 2% and consistent growth, is now behind us.” In his opinion, the “new balance” might lie between 3% and 4% for advanced economies over time, though not immediately. This perspective, although it might seem negative, is based on a detailed analysis of global trends and economic mechanics.

Many remember Roubini as the “Doctor Apocalypse” due to his frequently gloomy forecasts. He gained prominence with a notably skeptical prediction in the periods leading up to the 2008 financial crisis when he foresaw a “traumatic landing” and sounded an alarm regarding the collapse of the US real estate market. In a recent article on MarketWatch, Roubini pointed to the possibility of a brief and mild economic contraction in the upcoming year. He also emphasized that if the actions of central banks to regulate inflation were to create economic and financial instability, the decision to tolerate an inflation rate above the set target might arise. This would carry the risk of destabilizing inflationary expectations, triggering a continuous cycle of rising wages and prices.

Statements that spark debate

Roubini’s reflections have sparked extensive debate in the economic landscape. While some experts align with his analysis, others believe that advanced economies can still aim for a balanced inflation rate. However, the undeniable fact is the importance of preparing for various future scenarios. In a context of globalization, economies are interdependent, and fluctuations in one region can impact others.

Roubini also highlighted the need for flexible policies. In a setting where inflation might prove to be volatile, financial institutions and governments must be prepared for prompt actions. This might involve adopting unconventional measures or reevaluating inflationary targets.

A key point is the urgency to enhance international cooperation. In an environment of rising inflation, trade tensions or geopolitical disagreements could further exacerbate the situation.

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