Staying the course on decarbonisation

THERE are signs that the global inflationary surge is gradually tapering off – the belated but aggressive monetary policy tightening by the Federal Reserve and other central banks worldwide, coupled with an easing of some of the transitory forces fuelling higher price growth globally.

However, other more structural factors – encapsulated by three Ds – could contribute to some inflation persistence over the medium term. The first among these are concerns about decoupling if not outright deglobalisation due to the ongoing tech cold war between the United States and China. As firms build redundancies in their supply chains in response to a more uncertain geopolitical environment, these increased costs will inevitably feed into higher consumer goods prices.

Second, the changing demographics – particularly declining labour force participation rates across advanced and many middle-income economies, along with a discernible shift in the labour-leisure trade-off of workers post-Covid and choices on the type and quality of work – could keep labour markets tight, with rising wages in excess of productivity growth being absorbed by increased prices.