Is high inflation in the US a risk? Ben Bernanke and El-Erian have very different views on economic impacts – Expert 2021

SAO PAULO – One of the themes that has stirred the financial market the most is the fear of high inflation in the United States. While stock exchanges have had days of panic over recent data, the Federal Reserve (US central bank) continues with a speech that high inflation is a passing phenomenon.

And two of the most important names in the market in recent years have very different views on this scenario. On the one hand, Ben Bernanke, former chairman of the Fed between 2006 and 2014, agrees with the US BC that inflation should not remain high for long, while on the other, Mohamed El-Erian, economist and chief adviser to the group Allianz is very concerned about the risk of inflation.

During a panel at Expert XP, the two discussed their views, with Bernanke reinforcing that he sees high inflation as something fleeting, especially in a scenario where it has been well below the Fed’s 2% target for a long time, being “normal” that now it can stay a period above that level.

Even so, he agrees that inflation is higher than expected, citing a number of factors for this to happen, including the economic reopening, highlighting, for example, some specific categories such as the case of the price of used cars, which can explain the view that the scenario must reverse over time.

The economist also recalled the debate on the inflationary pressure of the trillion-dollar package recently approved in the US Congress, but which, according to him, “are aimed at infrastructure projects and we are talking about things for the next 10 years.” In addition, he said that commodity prices fell and became more stable in the middle of the year, indicating a more moderate inflation for the coming months.

According to Bernanke, it is a fact that higher inflation has risks, such as impacts on rent prices, which accompany the rise in house prices. There is also an environment of impact in the supply chain, with closed ports, for example, which can bring even more inflation problems.

The former Fed chairman says that some sectors are projecting higher inflation, but when the picture is seen from a broader perspective, inflation projections remain at levels close to what the Fed is comfortable with.

El-Erian began his response by saying that he wants to be wrong in his view, but that he is very concerned about the current scenario. He says that while there is a lot of talk about the CPI (consumer inflation), the PPI (producer inflation) is also high, indicating that there is more inflationary pressure.

He says that the companies themselves no longer believe that inflation will be temporary, but that the rise in prices will last longer. “I spend a lot of time talking to companies, and they don’t think inflation is short-term. So, many of them have already started to increase their prices, confident that inflation will last longer”, he says.

“We have to be open-minded to the possibility of higher and persistent inflation”, he adds, stressing that the US should not return to the levels of the 1970s, but even so, above what was initially planned.

For the economist, the supply chain is not a short-term impact, because they are being “redesigned” in a scenario where companies are focusing on resilience.

Meanwhile, he sees the problem of the labor market as a “puzzle” in which no one knows what will happen, with more than 10 million jobs. “We hope that this will be temporary”, he says, highlighting the difficulty of projecting impacts.

Their different views also lead to very different projections, while Bernanke sees inflation hovering around the 2.5% mark next year, a level he still considers comfortable, El-Erian says he sees prices rising at a “more close to 3% than to 2%”.

The pair also debated the macroeconomic models, with El-Erian pointing out that they cannot capture major structural changes, making it necessary for the Fed to have closer contact with companies and use other ways to understand those impacted in a scenario with changes as strong as the current.

Finally, he also stressed that his disagreement with Bernanke is more about the trajectory we should take and not about where the US will go.

“I and he [Bernanke] we don’t think differently in terms of destiny. If we’re asked what we see for the future of the US and the economy five years from now, I don’t think we’re going to be too different about what fate will look like. What we differ is about the journey, my concern is that the journey will be unnecessarily tumultuous […] I agree with Ben, we will emerge as a more productive economy, but it is the process that will lead to this [que preocupa]”, concludes.

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