Catherine Mann, a policymaker at the Bank of England, has expressed her concerns about the fragmenting global economy and its impact on inflation. Speaking at the International Monetary Fund, Mann emphasized that countries will be more exposed to inflation shocks in the future due to the end of the “great moderation,” a period characterized by stable inflation and low volatility.
Mann highlighted that global integration was a key factor contributing to the stable inflation of the past. However, with ongoing fragmentation of trade and capital flows, both emerging market and advanced economies are facing challenges. This shift is likely to result in lower potential growth rates for economies, creating inflationary pressures that central banks will need to address.
The changing global economy is leading to a decrease in trade and finance, with countries experiencing disengagement rather than reformation into distinct economic blocs. Mann pointed out that this trend brings significant risks and uncertainties, including volatility and potential trade-offs involved in moving towards more localized supply chains.
Overall, Mann’s remarks underscore the complexities and challenges that central banks will face in navigating the evolving global economic landscape. Central banks will need to maintain high levels of vigilance, manage increasing inflation volatility, and adapt to changing dynamics to ensure stability and growth for their economies.