Credit: Universities Scotland

Following the economic pandemic panic, Glasgow’s Principal discusses the issue of inflation

By Lucy Dunn

Professor Sir Anton Muscatelli writes on why inflation is the biggest test yet for central bank independence in The Conversation.

Sir Anton Muscatelli, Principal of the University of Glasgow, has published an article about the current state of economic inflation during the Covid-19 pandemic. 

In his essay for The Conversation, the economist discussed a rate of inflation cited by the US recently as being the “highest in nearly 40 years”, and analysed the significance, permanence and causes of current rates. 

The University’s Vice Chancellor concluded that central banks should prepare plans to tackle inflation, which may involve changing interest rates and tapering quantitative easing – the introduction of new money into a money supply – whilst warning against moving “too fast… or too slowly”. 

Globally, the economy has taken a hit due to Covid-19, with the UK government borrowing £299bn in the first year of the pandemic, the most money it has ever recorded since records began in 1946.

However, at the beginning of 2021, stocks rose optimistically following US President Joe Biden’s $1.9tr economic “rescue plan“. But this rise did not remain steady and in the third financial quarter of the year, “inflation made itself at home”, and with the recent variant Omicron causing significant uncertainty across health, political and economic sectors, central banks are trying to figure out how best to react.  

Muscatelli noted that reducing quantitative easing (QE) has previously resulted in “painful recessions, leading to unemployment”, emphasising that “at any rate, QE needs to be ended carefully”. He also discussed that whilst central banks exercise an independence over their monetary policies, “[they] may not be immune from external pressures during a major economic crisis”, making reference to Covid-19. 

The Principal summarised with his own take, that “it would be better [for central banks] to wait” before taking decisive action to help stabilise the economy. “The next few weeks,” he wrote, “will give us more data on both inflation expectations, but also on how Covid [sic] might continue to affect our economies.”


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