Liu Jianwei

liujianwei755@163.com

WORLDWIDE stock markets have been tumbling in recent days due to a number of factors, two of which are major concerns going forward: will the geopolitical pressure building up along the Ukrainian border lead to a war? And how to curb the mounting global inflation?

On March 11, 2020 when the World Health Organization declared the novel coronavirus (COVID-19) outbreak a pandemic, inflation was among the least of people’s worries. Their minds were then preoccupied with lockdowns, dysfunctional economies, lost jobs, disappearing demands and other doomsday scenarios.

Though we are still far from out of the woods from the COVID-19 infliction, the rapid bounce back from the economic plunge in 2020 is the most significant in macroeconomic history.

The swift real-time responses by central banks and their governments, from generous paycheck handouts to audacious asset purchases, changed people’s mindsets and their behavior, hence turning around the downward trend in a very timely fashion. In fact, quick stock market and other asset price bounce-backs caught many people off guard.

Among other intended and unintended consequences, the fiscal splurge has helped to push the demand for physical goods through the roof during this pandemic, and the already disrupted global supply chain is not ready for such a quick comeback.

Upon the onset of this pandemic, upstream industries, including energy producers, raw material suppliers and logistic providers, expecting vanishing demands and a prolonged economic slump, had cut down investments, laid off workers and retreated to a hunkered-down position. And now skyrocketing shipping costs and chaotic backlogged sea ports along the U.S. coasts are demonstrating just the opposite.

The classic combination of supply and demand has formed a perfect storm for inflation.

When high inflation pressure began to show its claws in the first half of 2021, senior officials in the U.S. Federal Reserve loved to label the phenomenon as “transitory.” Many market participants also believed it to be transitory. After all, high inflation during an ongoing pandemic?

Yet the “transitory” situation lingered on and actually built its momentum. Months later Nov. 30, 2021 during his testimony before the Senate Banking Committee, Fed Chairman Jerome Powell declared it high time to retire the word “transitory” for the status quo of inflation.

All investors’ eyes are on the Fed’s policy meeting this week. Interest rate hikes, or the layout of an interest rate hike roadmap, are expected to come out of this meeting. Although the high inflation nightmare during the late 1970s and early 1980s is unlikely to come back and haunt us, now is time to lift our heads out of the sands and employ concrete measures to rein in the potential inflation rampage.