Central bankers are slowly recognising that inflation is becoming a serious problem. But their responses differ. So chemical companies will find it harder to predict interest and exchange rate policies.
China is the country most worried by inflation. Premier Wen Jiabao made it top priority in his annual report on Monday to the National People’s Congress. With inflation already at 7.1%, Mr Wen emphasised that "the primary task for macro-economic regulation this year is to prevent fast economic growth from becoming overheated growth, and keep the structural price increases from turning into significant inflation".
Europe and the UK are becoming worried. Jean-Claude Trichet, European Central Bank President, commented on Friday that "globalisation has no doubt helped central banks over the past decade. Today, this is less clear cut”. And he added that the surge in commodity and food prices "reminds us that globalisation can also lead to upside risks in world inflation". In this, he echoed Mervyn King, Governor of the Bank of England, who warned last month that “rising energy, food and import prices will push up inflation".
The USA claims that inflation is not yet a real threat. On Friday, Fed Vice Chairman Donald Kohn again stressed that the “distinction between transitory and persistent influences on inflation from oil and other factors is critical”. But traders, as I noted last week, are convinced this supposed ‘distinction’ is simply a figleaf to cover the Fed’s decision to keep cutting interest rates and ignore inflation risks.
In Japan, where the yen has been rising, a policy vacuum is about to appear. The current central bank governor, Toshihiko Fukui is due to retire on 19 March. But the government’s nominee as his successor seems likely to be blocked by the opposition.
Meanwhile, investors worry that inflation may get out of control. So commodities such as crude oil seem attractive as a potential ‘store of value’. From a chemical company viewpoint, this means we may well end up with the worst of all possible worlds - volatile currencies, higher feedstock costs, and slower global growth.
As the Bank of France’s governor, Christian Noyer, lamented on Friday, "the good times are behind us".