– Global inflation is likely to be elevated for 5-10 (?) Years. This is the result of fiscal and monetary expansion, a path to debt reduction, as well as the likely cost of the necessary climate policy. Will central banks be raising their inflation targets soon? – Mateusz Walewski, BGK’s chief economist, asks on Twitter.
Climate policy and inflation
Recently, more and more is being said about the costs of the European Union’s climate policy. Let us recall that according to the assumptions of the “Fit for 55” package, greenhouse gas emissions in the EU would be reduced by 2030 by at least 55 percent. compared to the 1990 level.
Once this target is achieved, the EU plans to make Europe climate neutral in 2050. The climate package still requires approval by the European Council and the European Parliament.
According to analysts from the Polish Economic Institute, Fit for 55 will require investments estimated at around EUR 500 billion annually by 2030. (EUR 350 billion more than in 2011-2020). Recently, experts from Bank Pekao have also made their calculations for Poland. In their opinion, this cost it may reach as much as PLN 2.4 trillion by 2030. It is as much as PLN 900 billion more compared to the emission reduction scenario by 40%.
The cost of not taking action will be catastrophic
According to the report Swiss Re, one of the world’s largest reinsurance companies (insurance companies for other insurance companies), it can be expected that the effects of climate change will reduce by 11-14%. global economic production by 2050 compared to a growth rate without climate change.
That’s as much as $ 23 trillion of reduced annual global economic output worldwide – warns Swiss Re. Rising temperatures are likely to significantly reduce the world’s wealth, she said. Falling crops, disease spreading and rising seas will be the cause.
“If the world does not slow down the use of fossil fuels quickly, the consequences will be catastrophic,” the Swiss company said.
See also: PiS ideas to fight inflation. Belka: It would be a disaster
Inflation in Poland and in the world will be high?
That is why Mateusz Walewski writes about a “necessary change” which, however, will require increased prices. PKO BP economists are of a similar opinion. In their last November report, they listed a number of factors that could push prices up above the previous years’ average. Let us give them the floor:
In the report, we identified factors that will determine inflation in the coming years, including demographic processes, migrations, changes in the wealth of the society, energy transformation, trade wars, nearshoring, or the shape of the redistributive policy of the state. Coupled with the processes triggered during the pandemic (in particular with the huge fiscal and monetary expansion), we believe that inflation may remain above-average in the years following the pandemic (higher than the average of the last two decades).
In turn, Adam Czerniak from Polityka Insight believes that inflation will be elevated in this decade and will remain higher than the current range of fluctuations of the National Bank of Poland’s target, i.e. above 3.5%.
“It is a combination of monetary and climate policies and supply constraints (raw materials, supplies, labor). There will be no increases in inflation targets “ – he convinces.