Economist El-Erian: Inflation Will Go Up Due to Oil Issues, 'Energy Transition' Helps Make Soft Landing Unrealistic

On Friday’s broadcast of CNN International’s “Quest Means Business,” economist and Queens’ College Cambridge President Mohamed El-Erian stated that getting inflation down to 2% is getting harder and headline inflation will “go higher with what’s going on in the oil market.” And that due to the “energy transition” and other factors, we can’t realistically reach a 2% target without crushing the economy and we should ditch 2% inflation as a goal.

El-Erian said, “So, we are in the last mile. The last mile was going to be tricky, but it’s getting trickier. Already, we’ve seen headline inflation go up from [3]% in June to 3.7% in August, and it’s going to go higher with what’s going on in the oil market. So, it is getting trickier this last mile. And the risk is either inflation on the one hand or a serious economic slowdown on the other. There is a path between those two, but it’s quite a narrow path.”

Later, he stated, “We are living through major supply changes, … the labor markets have skill mismatches, companies are looking to diversify the supply chains, and we have an energy transition. In a world like that, 2% is not the right target right now.”

Host Richard Quest then countered, “I can agree with you, but you can’t change the target. You can’t move the goalposts in the middle of the game, particularly when you’re losing. And that’s what it would look like.”

El-Erian responded, “I agree, and I think we’re going to end up doing it implicitly, not explicitly. So, by the end of the year, I think the central bank — well, central banks are going to have a very simple choice, either you pursue 2% and you crush the economy or you promise us 2% down the road, you promise us that the destination is ultimately 2%, but you pursue a 3% journey. And I think that, between those two choices, we are more likely to end up in the second than in the first.”

Follow Ian Hanchett on Twitter @IanHanchett


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