Inflation without oil and gas. How long will the West last in the new reality

MOSCOW, October 18 – PRIME, Oleg Krivoshapov. A significant slowdown in global inflation will not have to wait for another ten years, experts are sure of one of the largest US investment banks. “Prime” decided to find out what this forecast is based on.

INFLATION, INFLATION, INFLATION…

Consumer inflation, including in countries with the most developed economies, will remain high over the next decade, Bank of America (BofA) analysts concluded.

In their opinion, not a single developed economy will be able to return to the planned inflation rate of 2% faster than in 10 years, if this indicator at some point exceeded 5%. For the last decade, the bankers say, inflation in the West has generally been below 2%. However, in 2021, everything changed. In the US in June 2021, it was 5.4%. Over the next 12 months, it accelerated almost continuously and in June of this year reached a maximum of 9.1%. In September, the figure was 8.2%.

In turn, the single European currency, according to the European Commission, depreciated in July by 8.9% (a year earlier, the figure was 3%), in August lost 9.1% of its value.

Thus, the expectations of American bankers are justified.

By the way, BofA is one of the largest financial conglomerates in the United States, providing a wide range of financial services to individuals and legal entities. At the end of 2021, it took second place in the list of the largest banks in the country with a total balance of $2.16 trillion.

Vasily Koltashov, head of the Center for Political and Economic Research at the Institute for a New Society (INO), discussing the origins of inflation, which may become an integral part of the life of a Western citizen in the next decade, points to destructive processes in the respective economies.

“These are post-crisis changes created by the great economic crisis of 2008-2020, when Western central banks, finance ministries and governments in general did not allow the normal development of the crisis and transferred to the new economic era all those problems that needed to be solved within the boundaries of 2020,” he thinks.

Oksana Kholodenko, head of the analytics and promotion department of BCS World of Investments, has a somewhat different opinion, and noted that the forecast can only be partially correct.

“Inflation in the US and a number of developed countries has already moved into the category of structural inflation. Next year, US consumer inflation may drop to 4-6% per annum. The Fed’s long-term target of 2% still looks unrealizable. Stagflation risks are relevant,” she argues.

INDIFFERENCE TO ENERGY RESOURCES

In turn, BofA analysts in their report pointed to the lack of investment in energy that has persisted for many years as the main reason for the unprecedented acceleration of inflation. According to their calculations, total investment in the oil and gas industry, having reached a peak of $750 billion a year in the mid-2010s, then began to decline and eventually fell to less than $500 billion a year. “Irrational investment in relatively inefficient, dispersed, expensive and imperfect sources of energy (wind and sun) left Europe defenseless against the whims of the enemy, which significantly contributed to the growth of global inflation,” the organization’s report says and added that oil prices are expected next year at level 100.

If the forecast comes true, the price of raw materials will rise by 40% compared to the previous decade.

“BofA’s fears look logical,” Ekaterina Krylova, managing expert of Promsvyazbank (PSB), agrees. “In fact, many years of underinvestment in energy contributed to an increase in production costs. Also, many investments in alternative energy turned out to be either expensive, or inefficient, or both “The other thing is immediate. This, among other factors, has indeed driven up global inflation. With commodity prices set to be high in the coming years, inflation has little chance of returning to low levels.”

“I fully agree with BofA’s statement that traditional energy has been heavily underinvested in recent years,” said Dmitry Koptev, head of the media center at the Institute for the Development of Technologies in the Fuel and Energy Complex (IrtTEK).

“For some reason, the opinion has become mainstream that it is possible to abandon oil and gas overnight and replace them with renewable energy sources. At the same time, forecasts were completely ignored, according to which even by the middle of the century, traditional energy carriers will still make up more than half of the global energy balance,” he added. he.

However, the expert is not ready to make long-term forecasts in the current situation. “Firstly, there is now an equally widespread rollback – politicians and economists have realized that renewable energy will not be able to replace traditional energy in the short term,” he reminds. moment there will be a breakthrough that will change our understanding of energy is not possible. As, however, and whether it will happen at all.

EFFECTS

On the other hand, now in Europe there is a reduction in production capacity, draws the attention of Koltashov. “Industry in the West will shrink, especially in the European Union,” he predicts. “With the possible exception of the United States and Canada, but definitely including the UK and Japan. This zone, which they called post-industrial, will indeed be largely de-industrial. We already We are watching how it happens, and this creates pressure on the energy market.”

In other words, the next decade promises to be difficult for the world economy, and the main challenge will be problems in the countries of the “collective West”, including the United States. The main reason probably lies in the short-sighted energy policy of the Euro-Atlantic community, and a clear manifestation of this negative will be high inflation in the context of partial de-industrialization of Europe, the exact extent of which is not yet clear. In turn, the EU, UK and US regulators are demonstrating their readiness to fight inflation by raising refinancing rates, which is fraught with a slowdown in the economy. And Western experts are clearly not ready to offer an effective recipe for solving the problem that has arisen, which every day looks more and more like a systemic and unsolvable one, at least in the foreseeable future.