Credit Suisse chairman warns temporary inflation talk

Credit Suisse Chairman Antonio Horta-Osorio said that the talking down of speeding inflation as a temporary phenomenon by many central banks poses risks of a more intense monetary adjustment. In Lisbon, he told a banking conference that the markets have been giving a lot of credit to central banks, but the latest indicators are that the temporary is perhaps less temporary.

The Portuguese former Lloyds Bank chief executive added that the risk for central banks here is that if inflation proves not to be temporary, it could trigger a much more intense monetary adjustment than would otherwise be necessary. Supply chain disruptions and a sharp increase in energy prices are now driving market inflation expectations. Horta-Osorio said that this would be important in defining what happens to long-term interest rates and the yield curve. If interest rates start rising aggressively before economies have managed to reduce their indebtedness, then that would be the biggest threat to countries like Portugal.

At the same conference, European Central Bank Governing Council member and Bank of Portugal Governor Mario Centeno insisted that the inflation is still a temporary phenomenon. And that is due to the speed of recovery and the bottlenecks of supply chains, with no secondary effects from the labour market on prices in Europe. He also said that the Monetary policy must be aware of its capabilities, but it cannot resolve supply shocks. They must also be patient.