The world's central bankers are a closed club which its modes. In the early 1980's, it was advocated by Milton Friedman monetarism. After its discredit began the quest for a new mantra. It was the "inflation targeting". According to this rule, the interest rate must be met when the price exceeds a target level. This rudimentary method is based on economic theory poor and little evidence empirical there is no reason to believe that, whatever the source of inflation, the best solution is to increase interest rates.
Inflation targeting will likely fail. If developing countries are experiencing higher inflation, this is not because of mismanagement, but the thrust of the price of oil and foodstuffs, which absorb a part of the household budget greater than in rich countries. Inflation exceeds 8 by China for example and should soon reach 18 to the Viet Nam, while it remains at 4 in the United States. Developing countries should increase their rates more than the US
In these countries, the inflation in large part is imported. Increase their rates would have little impact on world prices of cereals and oil. The US economy being more powerful, a slowdown in the United States would have more effect on world prices. World view, it would raise US interest rates and not those of the developing countries!
For many developing countries, high oil and food prices are a threat at three levels: they must pay more to pay their imported grain to come and to deliver to consumers who live far from ports. The increase in interest rates can reduce global demand, which, in turn, can slow the economy and contain price increases. But, unless rates were brought to an unbearable level, these measures alone cannot bring inflation at the targeted rate. Suppose that the world prices of energy and food prices increased at a more moderate rate that currently, for example by 20 per year. To reduce the rate of inflation to 3 in a given country, should be that all other slowing sharply, prices or even decrease, The cure would be worse than the disease.
What to do First, do not make politicians and the responsible central banks of imported inflation, or assign the merit of controlled inflation when the world situation is conducive. The low rise in the price observed in America in the Greenspan years has thus first the lower prices of food products and the deflation in China. Then, we must recognize that the increase in price causes high anxiety. The riots in some developing countries are that reveal this malaise.
Activists of the liberalization of trade will be never completely honest about its risks. More than twenty-five years ago, I showed make off, under plausible conditions, trade liberalization could all deplete. I was not arguing for protectionism but rather sounding a. When it comes to agriculture, developed countries protect consumers and farmers against risks.
To avoid a return to stick even more violent that that of globalization, the West must respond quickly and strong. Need subsidies for the production of biofuels, which were encouraged to pass food to energy. More important, it must abandon the inflation targeting. It is hard enough to keep the distance to the increase in food and energy prices. Inflation targeting would have little impact: it will be complicated further survival in these conditions.