“Inflation is the most regressive tax possible”

With the great return of inflation, central banks are at the heart of the debates. The European Central Bank (ECB) is organizing its major annual forum from Monday, June 27 in Sintra, Portugal, bringing together the bosses of the Federal Reserve (Fed), the ECB and the Bank of England. At the same time, the Bank for International Settlements (BIS), an international organization nicknamed the “central bank of central banks”, publishes its annual report on Sunday June 26. Luiz Pereira da Silva, its deputy director general, warns of the danger of falling into a regime of high inflation.

Inflation reached 8.1% in the euro zone, 9.1% in the United Kingdom, 8.6% in the United States. How to cope ?

I come from a developing country, I am Brazilian. I have a particularly vivid memory of what inflation is. It is the most regressive tax possible: it eats into wages, it affects the lives of the poorest, it weighs on the purchasing power of employees, it prevents them from projecting themselves into the future. Everything must therefore be done to prevent inflation from changing course, ie moving towards a lasting and high rise in prices, which spreads throughout the economy. This requires anchoring in the expectations of economic agents, in people’s heads, that this situation will not last. How to do it ? It is the job of central banks to bring inflation down to a stable level. They are all in the process of acting. They have the experience and the instruments to achieve this.

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Brazil experienced hyperinflation in the 1980s and 1990s, then peaks at nearly 20% in the early 2000s, and still 12% today. Tell us about the impact it had…

Inflation first affects the poorest, wage-earners, people who do not have the possibility of protecting their income with financial tools indexed to rising prices. This means much greater instability in terms of investment decision, lower growth… One faces uncertainty about one’s income at the end of the month, one’s purchasing power, the right investment to make in the ‘economy. This is why central banks have a decisive role to play.

They must be seen as providers of a common good, namely financial and price stability. It is this common good that makes it possible to reflect on long-term growth. It is a base that makes it possible to engage in structural reforms with much more social consensus. Here again, believe in the experience of an emerging country: carrying out reforms for growth in a period of financial and price instability is something very difficult, if not impossible. You have to put the foundations of the house in place first before you can discuss the rest…

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