How To Get It Wrong, Bigtime

Hi, I've been on a long summer break. Unfortunately I'm now back. This will be short and sweet, Christian Noyer has things absolutely back to front:

Globalization harbors inflationary risks: Bank of France study

A bank study noted that while globalization had spurred disinflation over the past 15 years, the trend is now reversing itself.

It said the opening of formerly protected economies and their inter-dependence, as well as the emergence of low-cost producers such as China, had increased price and salary competition and had thereby helped to control inflation.

But the bank also found that "the disinflationary effects of globalization are weakening, even reversing themselves today".

It said producers of manufactured goods, such as China, were increasing their demand for energy resources and are driving up energy prices.

Basically I'd seen this being propounded by Charles Bean over at Jacksons Hole, but I think it is absolute bunk. Globalisation may be many things but it isn't inflationary, at least not yet, and not for a long time to come it won''t be.

Inflation and a change in the terms of trade are not exactly the same thing. Of course developed economies have felt the pinch as third world growth pushes against global supply constraints, but the downward pressure on manufacturing and services isn't done yet, and not by a long haul.

Sure there is increasing pressure on prices in the bottom end of the Chinese labour market, but many of the products here will move out to other sources, and China will move up the supply chain to other - more valuable - products, and so we will move on, and on, and meantime 'disinflation' will continue its course. There's still one hell of a lot of slack out there to soak up.