National Bank boss Thomas Jordan believes long-lasting inflation is possible
The increase in inflation is not solely a consequence of the pandemic and the war in Ukraine. National Bank President Thomas Jordan said this at a symposium in the USA.
The Swiss National Bank (SNB) is currently assuming “that the increase in inflation should not be understood solely as a result of the temporary supply shocks triggered by the pandemic and the war”. This was said by SNB President Thomas Jordan on Saturday at a symposium in Jackson Hole, in the US state of Wyoming.
According to the text of the speech, structural factors such as the increasing national debt worldwide, the green restructuring of the economy and demographic development could lead to persistent inflationary pressure in the coming years. It also plays a role “that globalization seems to have reached at least a temporary peak”.
Businesses are more likely to get away with raising prices than they used to be
The decline in global economic integration could increase corporate pricing power, making it easier to push through price increases. This is also indicated by the surveys of companies in Switzerland regularly conducted by the National Bank.
“These talks show that the long-standing reluctance of companies to raise prices has largely disappeared,” Jordan said in the presentation. In the current situation, price increases are more readily accepted by the market than in the past.
Armament spending could drive up interest rates
Further developments are difficult to predict. The National Bank must be prepared both for rising interest rates and for a sudden return to the policy of cheap money as a result of massive economic crises. “The economic models may capture the current situation less reliably than usual,” warned Jordan.
The effects of the international “very expansive monetary and fiscal policy in the wake of the pandemic and the war in Ukraine” are still difficult to assess. The rearmament, together with the high investment requirements for armaments, could increase the capital requirement worldwide. This would make money more expensive and raise interest rates over the long term.
National Bank wants to keep all options open
In view of the uncertainties, Jordan warned against efforts to involve the National Bank in political goals such as climate protection or the fight against global inequality or even to use it directly to finance state tasks such as old-age provision. This inevitably leads to conflicts of interest, according to Jordan. A national bank’s priority should be the stability of the national currency. “The biggest problem for socially disadvantaged classes that central banks can influence is inflation,” Jordan said.
Thomas Jordan was heavily criticized in the summer because the SNB’s models had not accurately predicted the sharp rise in inflation. Last December, Jordan had forecast inflation of one percent for 2022. Inflation in Switzerland has now passed the three percent mark. On June 16, the SNB corrected its assessment and raised the key interest rate to -0.25 percent. Further increases could soon follow.