Challenges for Monetary Policy Part 9 of 14
I think it is now clear that the winds have shifted. The growing appetite for raw inputs from the new participants in the global economy Winning Forex Trading represents an inflationary headwind that is unlikely to soon abate. The so-called income elasticity of demand for energy is 1.2 across a wide range of countries, which is a fancy way of saying that economic theory should lead one to conclude that the demand for energy in, say, China, for example, would begin to grow faster than Chinas income growth, which continues to increase at a rapid rate. Put more simply, income growth in China and India and elsewhere, even if it slows from its torrid pace, is likely to continue raising demand for food and energy. There is a risk that upward price pressures will continue to affect American producers and consumers of energy and food products and a continuing danger that overall inflation expectations will drift upward as a result.
If I am correct, then the situation today Forex Essentials is the flip side of the 1990s and early 2000s: In delivering on our mandate to be monetary policy owls, we will have to err on the side of running tighter policy than would otherwise be justified if we wish to limit upward inflation pressures.
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