| Hello. Today we look at the role inflation is playing in various national elections, the upcoming week in central banking and the new paper on debt from Carmen Reinhart and Kenneth Rogoff. Voters head to the polls in Canada and Germany in coming days, yet they're taking opposing views of how important accelerating inflation is to how they cast their ballots. Prices are going up in both Group of Seven economies just as they are globally. For Canadians, who vote on Monday, that's an issue and a risk for Prime Minister Justin Trudeau. Consumer prices rose 4.1% in August, the most since 2003, data showed last week. In a survey by Abacus Data, 38% said reducing their cost of living was a key factor impacting their vote — making it the top issue by far. The opposition Conservatives have harnessed such concerns to make the election much closer than Trudeau imagined. They are accusing the Liberal government of not doing enough to temper climbing costs for housing, cars and gasoline and for risking even more inflation via debt-financed spending. - Read more on the Canadian election here
Similar grumbles are being heard in the U.S. Overheating concerns could undermine President Joe Biden's $3.5 trillion long-term economic spending plan a year out from midterm elections. Soaring inflation also played a part in recent votes in Argentina and Peru.
Price increases and the resulting erosion of living standards were among challenges the Kremlin also faced in engineering the commanding victory for President Vladimir Putin's ruling party in parliamentary elections. Where, for one, the issue doesn't seem to be featuring quite so much is Germany, whose voters goes to the polls on Sunday. The Weimar-Republic hyperinflation of the 1920s means Germans are typically fearful of the consequences that price increases hold in store. This time around, however, there has been a less hysterical response to the biggest inflation spike since 2008. A recent televised debate between candidates vying to replace Angela Merkel didn't even mention the matter specifically. "It's surprisingly quiet compared to what you would have expected 10 years ago," said Ferdinand Fichtner of Berlin's University of Applied Sciences. "The outcry could have been louder. As far as the election is concerned, the topic may even be over because there'll be no new inflation numbers." - Read more on the German election here and Andreas Kluth's column on the topic here
Rising prices may still trouble Merkel's successors however. As Catherine Bosley and Isis Almeida write today, the deepening chaos in Europe's energy markets risks driving up power bills across the region. "There is a huge consumer tax right now being implemented and it's going to get higher during the winter," said Steen Jakobsen, chief economist at Saxo Bank. "Anyone who thinks this is temporary is out for a big shock." —Simon Kennedy There are at least 15 central bank meetings this week.
Federal Reserve Chair Jerome Powell faces a communication challenge on Wednesday as he leans toward paring back stimulus while trying to avert speculation that such a shift presages future interest-rate increases. Economists surveyed by Bloomberg see the hint that tapering is coming being followed by a formal announcement in November. Meantime, the Norwegian central bank is set to hike interest rates, as is its counterpart in Brazil. The Bank of England, Swiss National Bank and Bank of Japan are seen leaving monetary policy on hold. For a full rundown of the week ahead, click here. Click on the links to read any of the stories in full: - Housing inequality | Soaring property prices are forcing people all over the world to abandon all hope of owning a home. The fallout is shaking governments of all political persuasions.
- The real taper | Fading U.S. fiscal support is likely to be a much bigger deal for the world's biggest economy than the Fed's taper.
- Avoiding catastrophe | Treasury Secretary Janet Yellen renewed her call for Congress to raise or suspend the U.S. debt ceiling. Here's a rundown of the debate.
- Calming words | China's top regulators defended their market-roiling crackdown on various industries in a meeting with Wall Street executives.
- Digital currency | The evolution of central bank digital currencies is set to get supercharged in ways that will have profound implications both for economic policy making and for society.
Carmen Reinhart and Kenneth Rogoff are back writing about debt, a decade after their bestseller on the history and risks of governments going into the red. In their new research — produced with Ayhan Kose and Franziska Ohnsorge — they study how emerging market and developed economies last year ran up borrowings that now total an equivalent of around 206% of gross domestic product, the highest since at least 1970. As for how to pare the burden, the authors say while high growth, low interest rates, and financial repression are viable ways, inflation is likely to be ineffective and debt restructuring politically challenging. "Unfortunately, none of the options to deal with debt is attractive or easy," the group write in the paper published by the National Bureau of Economic Research. "There remains the prospect that the inequality between advanced economies (or even some EMDEs such as China) and the rest of the world could become much worse." Read more reactions on Twitter - Click here for more economic stories
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