Banking, investment chiefs say high inflation levels no longer transitory

18 November 2021

SINGAPORE - Higher inflation is expected over the next few years as the world emerges from the Covid-19 pandemic, according to senior bankers at a forum in Singapore on Wednesday (Nov 17).

UBS Group chairman Axel Weber told the event that while growth and economic recovery should continue, governments and central banks have important roles to play in ensuring prices are stable because rising inflation is no longer temporary and will likely reset at uncomfortably higher levels over the next "one to three years".

Inflation, he said, could become more structural, particularly if monetary policy and government spending remain "extremely expansionary". Structural inflation refers to higher prices that result from changes in the structure of demand and supply.

DBS chief executive Piyush Gupta said inflation is a sticky matter and will not go away anytime soon. "The supply chain issue will last for the next few quarters. When you start seeing prices tick up, this builds inflationary expectations. And once these get anchored, you get into a spiral that is no longer transitory."

Pimco managing director and vice-chairman John Studzinski said that inflation, which has reached a 31-year peak in the United States, is "clearly going to remain high" over the next three to five years as issues with the global supply chain, corporate restructuring and deglobalisation continue.

All-items inflation in Singapore rose to 2.5 per cent in September on a year-on-year basis. The Monetary Authority of Singapore expects this to come in at around 2 per cent this year and at an average of 1.5 per cent to 2.5 per cent next year.

One of the ways that higher inflation will manifest itself is in higher wages paid to employees. "We are seeing a lot of wage inflation, not just in the US but in our part of the world," said Mr Gupta at the Bloomberg New Economy Forum.

Energy prices are likely to rise too. With more investments going into developing infrastructure and technologies for green or renewable energy, "there will be a structural shift away from fossil fuels that will drive energy price inflation", he added.

Still, Mr Weber noted that "if (governments and central banks) do their job and normalise policies and spending coming out of the crisis, inflation can be more short-lived".

"It depends on policy and how these levers are moved in the next few years," he said.