How Inflation Could Return - El Erian (PS)

https://www.project-syndicate.org/commentary/how-inflation-could-return-by-mohamed-a-el-erian-2019-05?utm_source=Project+Syndicate+Newsletter&utm_campaign=05153ce5b9-sunday_newsletter_26_5_2019&utm_medium=email&utm_term=0_73bad5b7d8-05153ce5b9-93854061&mc_cid=05153ce5b9&mc_eid=be3809ebbc



...interest rates may be causing resource misallocations and undercutting long-term financial security for households, elevated asset prices have heightened the risk of future financial instability....


...what if...in the middle of a multi-stage process in which strong disinflationary supply-side forces eventually give way to the return of higher inflation?


...Owing to the persistence of low inflation, monetary policies have remained ultra-loose for an unusually long time, raising concerns that the US or Europe may succumb to “Japanification” as consumers postpone purchases and companies reduce investment outlays. So far, that risk has led to protractedly low or negative (in the case of the European Central Bank) policy rates and bloated central-bank balance sheets, despite the potentially deleterious effects of such policies on the integrity of the financial system.


...these structural forces the Amazon/Google/Uber effect. While the Amazon model pushes down prices by allowing consumers to bypass more expensive intermediaries, Google undercuts companies’ pricing power by reducing search costs, and Uber brings existing assets into the marketplace, further eroding established firms’ pricing power.


...more low-cost production online and reducing the power of organized labor....inflationary influences....the slack in the labor market is diminishing every month, and increased industrial concentration is giving some companies, especially in the technology sector, far greater pricing power.


...growing political pressure on central banks to bypass the asset channel (that is, QE bond purchases) and inject liquidity directly into the economy.


... tariffs and other trade measures is risking a fragmentation of global economic and financial relationships, favoring higher prices, and compelling a greater degree of more costly self-insurance by companies and consumers.