THE PRICE OF A PANDEMIC A Conversation with Economist Stephen Roach BY: BRYSON WIESE
DURING A 30-YEAR TENURE at Morgan Stanley, Stephen Roach served as the firm’s Chief Economist and as the Chairman of Morgan Stanley Asia. Now a faculty member at Yale, Roach is an influential commentator on topics such as China, globalization, and trade, frequently appearing on CNBC and writing for outlets including the Wall Street Journal and Financial Times. The causes of inflation are being debated, but before we get into those, I want to ask about how we know that inflation is even occurring. What metrics do you find most useful for gauging inflation?
Primarily, we use the Consumer Price Index put out by the Bureau of Labor Statistics. We then use a comparable index put out by the Commerce
Department called the consumption price deflator. Sometimes, we take out food and energy to get a clean read on the non-volatile factors of inflation. There’s also an ancillary index put out by the Bureau of Labor Statistics, called the Producer Price Index, that looks mainly at price pressures bearing down on producers at different stages of the production process. We look at commodity prices, metals, energy, oil. There’s a lot of anecdotal price evidence. You know, new cars, used cars, home prices, and the like. So we’re not lacking in metrics. And the conclusion of virtually all of the ones is that in the last nine months, there’s been an appreciable acceleration in the rate of price increases. It’s now caught the attention of the Federal Reserve, which is empowered by Congress with aiming for “price stability,” defined by the Fed as an infla-
tion rate that is closer to 2%. We’re well above that right now. Did some economists see this upsurge in inflation coming more than others?
Well, I hate to beat my own drum, but 19 months ago, I wrote an op-ed piece in the Financial Times. The title of it was something like, “A Return to 1970s Stagflation is Only a Broken Supply Chain Away.” And, you know, the supply chain has broken for all practical purposes. We’re seeing bottlenecks and congestion all around the world. And yet, I don’t want to give myself too much credit because while the supply chain is a big issue, I don’t think it would have been enough in-and-ofitself to cause the type of sharp surge we’re seeing. That is, I think, equally 35 29
