The revival of inflation and the threat to central bank independence

Charles Goodhart, emeritus professor of economics at the London School of Economics and Political Science, talks to David Marsh, chairman of OMFIF, about his theses on the effects of demography and immigration, the revival of inflation and the threat to central bank independence. He sees this latter danger as particularly virulent from right-wing governments, including from the possibility of a re-elected Donald Trump (or indeed from a return of any Republican administration in the US).  Goodhart is a veteran central bank watcher who was a founder member of the Bank of England monetary policy committee in 1997-2000. He has warned for years that central banks may be unable to tighten interest rates sufficiently to ward off inflation because this would further exacerbate the budgetary problems of debt-ridden governments. In his prescient book from 2020, co-authored with Manoj Pradhan, The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival, the two authors explain the societal and economic changes wrought an ageing society.  They believe that the fall in the workforce will inevitably shift bargaining power to lower-paid workers and trade unions. Political resistance, they forecast, will prevent immigration from being large enough to reinflate the supply of labour and diminish inflationary pressures.

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