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The Inflationary Consequences of Deglobalization

Globalization previously made it easier for major central banks to pursue and maintain low inflation. Deglobalization risks having the opposite effect, and if this process continues unchecked, monetary policy may need to be tightened more than would otherwise be the case.

NEW YORK/HONG KONG – The return of high inflation in many developed economies seems to have surprised central banks and has quickly become people’s leading economic worry. While monetary tightening is necessary, the role of structural factors warrants attention, too. Specifically, besides pandemic-related supply-chain disruptions and the energy and food-price shocks amplified by the Ukraine war, policymakers must also acknowledge more explicitly the inflationary consequences of deglobalization.