Watch the intervention of Davide Serra (Founder and CEO, Algebris Investments) debating Policy-Making for an Inflationary Era with Gita Gopinath (First Deputy Managing Director, IMF) and Axel A. Weber (Chairman, IIF) at the 2022 Bloomberg New Economy Forum in Singapore.
History teaches us that when inflation stays above 5% for more than 12 months it takes years to be reversed back to central banks’ 2% target. We are well past 5% across global economies, and whilst we are at an inflection point in inflation we should really prepare for a period of structurally higher inflation as green transition, geopolitics and the decoupling of supply chains globally are intrinsically inflationary.
The world is designed to have inflation around 2-3%. We had zero for 10 years, now we’re going to have 3-4% for the next 10. This is positive as it’s the only way to de-leverage after years of cheap debt and easy money. The change of paradigm however will be an awakening for some. We’ve seen how the LDI issue caught regulators by surprise. We now talk about stocks and bonds, which are just 1x Global GDP against 4-5x Global GDP represented by real estate. So as soon as house prices start coming down, peoples balance sheets are becoming weaker.
Policymakers’ job has suddenly become more difficult.
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