- Sees no sign of wage-price spiral
- Should focus on normalising monetary policy
I'd agree that any major connections to a wage-price spiral are not evident at the moment but other issues encompassed by stagflation risks are certainly there. The big issue here though is that what exactly do central banks do in this kind of situation?
For all the talk of normalising or tightening policy to get back to 2% inflation , they sure are being rather cavalier about it. No doubt perhaps that they know regardless of what they do, it isn't going to fix the root of the problem. Are they worried about a policy error because in the first place, rate hikes are not going to solve anything? Maybe.
But if they truly believe that the only choice right now is to normalise or tighten policy or otherwise risk a recession, they're essentially abandoning growth stability in favour of inflation. At this stage, we may be staring down the barrel where it is guaranteed that we get tighter policy and a recession - which does not add up.