A prominent former advisor to Switzerland's central bank says monetary policymakers aren't taking the specter of price rises seriously enough.
Major central banks are underestimating the danger of inflation in monetary policy views, economist and retired academic Ernst Baltensperger, wrote in an editorial in «Neue Zuercher Zeitung» (behind paywall, in German) on Thursday. Baltensperger, an influential monetary doyen and former adviser to the Swiss National Bank, doesn't mention Switzerland by name.
«Far More Explosive»
Baltensperger compares the current economic conundrum to 1973 and the shock of surging oil prices and inflation. «Low inflation expectations seem well-anchored compared to 1973 when the oil price shock hit an inflationary process in full swing. Will this remain the case if central banks continue to take inflation lightly?,» he writes.
The 79-year-old noted the dilemma is «fundamentally far more explosive» than in the 1970s: abandoning long-held extremely expansionary monetary policy will be far more difficult than at the time. «Only the biggest fool can believe that this policy can be continued endlessly,» he wrote.
Triumvirate Hits Franc
Fed chairman Jay Powell recognized the risk of more persistent inflation, saying overnight the U.S. will stop calling rising prices «transitory». In Switzerland, COVID, inflation, and negative interest rates are driving a renewed appreciation of the Swiss franc.
This in turn piles the pressure on Switzerland's central bank, which spends much of its time defending the Swiss currency against what it views as too highly valued. Raiffeisen's chief economist Martin Neff on Tuesday cautioned that central bankers are downplaying inflation. «Inflation will cool, but the issue will stay with us for some time,» Neff said.
