PARIS, March 19: The governor of the French central bank warned on Wednesday that globalisation was switching from being a benign influence on consumer prices to being a force for inflation.
“Globalisation may turn out to be more inflationary in the future than in its early phase,” Christian Noyer said in a speech received here entitled “Is Inflation Set For A Comeback?”
“The effects of globalisation have ceased, probably in the long-term, to be spontaneously disinflationary,” he said.
Recent globalisation, notably the integration of the Chinese economy into the world trading system, had kept prices down in developed countries because of the stream of cheap exports emanating from the Asian giant, he explained.
The effect of this was set to attenuate, however, as the Chinese currency appreciates against its rivals and as inflation in China increases the cost of production there.
Furthermore, the thirst for raw materials to manufacture exports, as well as growing demand from domestic consumers in emerging countries, has led to increases in the price of energy and food on international markets.
Noyer said that inflation in the eurozone was set to remain at a high level.
Annualised inflation in the eurozone measured 3.3 per cent last month, far above the European Central Bank’s target of slightly below 2.0 per cent.
“Recent inflationary shocks are likely to maintain inflation at a high level for most of 2008” in the eurozone, he said.
Noyer also warned that climate change — either government attempts to combat it through taxes or disruptions to production by natural disasters — could also cause inflation.—AFP
