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Global cooperation, skillful leadership needed to address stagflation

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By Song Kyung-jin

Rising inflation and low growth are portents of stagflation, which the world previously experienced in the 1970s. Protracted quantitative easing since the 2008 global financial crisis, disruptions in global supply chains initiated by the Covid-19 pandemic and further exacerbated by the war in Ukraine, and record-high energy prices have all attributed to rising inflation around the world.

Whether or not the global economy is heading towards stagflation is not certain, but the possibility of it is growing. Mohamed El-Erian, the Egyptian-American economist, already warned that stagflation is "unavoidable" due to declining growth and rising inflation.

Yet there is little room for international policy coordination and cooperation as done immediately after the eruption of the global financial crisis in 2008. The U.S.-China competition and the war in Ukraine stand in the way of mustering the will for global collaboration, which is much needed at the moment.

Global quantitative tightening is aggressively underway to contain inflation. The Bank of Korea raised its policy rate from 0.5 percent in August of last year to 1.75 percent in May this year on the back of the highest inflation forecast in 11 years at 4.7 percent.

The U.S. Federal Reserve raised its policy rate 75 basis points to a range of 1.50 percent to 1.75 percent, the highest increase since 1994. At roughly the same policy rate in Korea and the........

© The Korea Times

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