Claudio Borio, head of the economic and monetary department at the Bank for International Settlements (BIS), celebrated the rise in inflation worldwide in an interview with CNBC. Borio was referring to the countries struggling to make this happen and that this should be celebrated as good news.
His comments came after inflation indicators exceeded expectations in both the U.S. and Europe in recent months.
Some European officials believe that the region’s pandemic-induced stimulus programs should be scaled back in the face of rising prices. In contrast, others argue that inflation will be temporary and that monetary policy should remain loose.
High inflation eliminates purchasing power, and low one limits growth
Economists are divided on the role of inflation. On the one hand, if it is too high, it eliminates consumers’ purchasing power; on the other, if it is too low, it can reduce economic growth. High inflation can also be damaging for stock markets because it often leads to higher interest rates, which means that large companies have to pay more to pay their debts service, which can erode their earnings.
Annual inflation in the euro zone rose to 2% in May , just above the ECB’s target of “below, but close to 2%”. This has been linked to the easing of various social distancing rules in the 19 euro nations and the willingness of consumers to spend more.
The ECB’s latest forecasts point to an overall inflation of 1.9% at the end of 2021, followed by a decrease to 1.5% and 1.4% in 2022 and 2023.
In the BIS’s latest annual report, the institution said that “normalizing policy will not be easy” for central banks.
Transfero’s thesis predicted inflationary effects on the economy
The rise in inflation was predicted in Transfero’s thesis that crypto-assets would be the best performers in the 2020-2021 biennium due to the expansionary policies adopted by central banks to recover economies. In the long run, rising prices erode the purchasing power of ordinary money, and crypto-assets can be an antidote to this in the same time frame.