It is essential that central banks are determined and credible in terms of monetary policy, otherwise their fight against inflation will be much more difficult and more costly for everyone, say the experts. This principle also applies to our public authorities and to the fight against climate change, says the International Monetary Fund (IMF).
Central banks are engaged in a merciless fight against the accelerating cost of living. They are rapidly raising their interest rates in order to force consumers and businesses to reduce their demand and thus slow the growth of prices.
In some cases, notably in Canada, central banks admit that their policies will have relatively little effect on inflationary factors that are essentially beyond their control, such as soaring energy and food prices. It is argued, however, that doing nothing would risk sowing doubt in the minds of households and businesses as to their degree of determination to keep inflation under control, which would complicate their task in the future.
It is certain that this monetary brake will dampen economic growth. It is even likely that it will plunge into recession countries representing at least a third of the world economy, the IMF admitted on Monday in the latest version of its World Economic Outlook. But the price to pay will be much higher if, rather than doing too much, central banks do not do enough and lose their battle against inflation and, thereby, their future credibility in the eyes of economic actors, it was said.
Of note, in the third chapter of these same World Economic Outlookthe IMF was essentially saying the same thing, but this time about governments and their fight against climate change.
We started with a damning observation. “Decades of procrastination have turned what could have been a smooth transition to more carbon-neutral societies into a change that will now have to be much more abrupt,” it said.
The world has eight years to reduce its greenhouse gas (GHG) emissions by at least 25% and still have a slim chance of reaching its goal of carbon neutrality by 2050, says the IMF. But at the rate things are going, we are heading more towards a temperature rise of 3.2°C by the end of the century than around 1.5°C as promised in the Paris Agreement on the climate.
The importance of credibility
Governments should have understood by now that to correct the situation, they would have to resort in particular to carbon pricing, subsidies and regulations capable of incentivizing consumers and businesses to choose clean technologies, says the IMF. However, the World Bank recently reported that less than a quarter of global GHG emissions are currently subject to some form of pricing, and that this pricing is only sufficient to achieve the targets set for 2030 for 4 % of total emissions.
These measures would not have to come with such a high economic cost, if, for example, the revenues from carbon pricing are returned to households who need them most or in subsidies for the green transition, explains the IMF. Global economic growth could slow by just 0.15 to 0.25 percentage points each year by 2030, probably even less in Europe, the United States and China (by 0.05 to 0.2 points) . As for the effect on inflation, it would also be relatively “moderate”, between 0.1 and 0.4 percentage point.
But if, by dint of procrastinating and procrastinating, governments maintain doubt in the minds of households and businesses about the seriousness of their approach, they will have to resort to more drastic measures to convince them that the green transition is inevitable and will inflict economic impacts twice as heavy. But that’s nothing compared to the economic, environmental and human cost that we would end up with if they decided to postpone even later the urgent measures necessary to let the current wave of inflation or a possible recession pass.
For more credibility in their fight against climate change, and in the absence of being able to entrust it to authorities independent of partisan politics, as we have done with monetary policy with central banks, governments should at least include in laws their GHG reduction targets and accompany them with transparent and reliable measuring instruments.
Until now, “the lack of ambition and will to take action has marked the history of climate policies”, deplores the IMF. “More false starts and more procrastination — because now is not the time — would only add to the damage. »