The Deglobalization Fuel Inflation Conundrum
By Dalia Marin  |  Feb 11, 2022
The Deglobalization Fuel Inflation Conundrum
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The pandemic-driven retreat from globalization, together with population aging in China and the advanced economies, is a recipe for inflation, say some economists, but Dalia Marin argues that while workers' bargaining power may rise, a wage-price spiral in the advanced economies is unlikely.

MUNICH - Inflation seems to be on everyone’s mind nowadays.1 The debate usually centers on whether the United States’ massive monetary and fiscal stimulus will de-anchor inflation expectations and cause prices to spin out of control.2 There is another trend that could also generate inflationary pressure: deglobalization.

Deglobalization has been occurring since the 2008 global financial crisis, but the coronavirus pandemic has significantly accelerated the trend. Using data from the financial crisis, Kemal Kilic - a professor of Data Mining and Machine Learning at Istanbul’s Sabanci University - and I predict3 that the COVID-19 shock is likely to lead to a 35 percent decline in cross-border value chains - the main factor driving globalization over the last three decades.

recent surveyby the Munich-based ifo Institute supports this conclusion. The study revealed that about 19 percent of German manufacturing firms plan to reshore production. Of these, 12 percent will begin acquiring inputs from German suppliers, and 7 percent will produce them in-house.

Rising transport costs5 are likely to accelerate the shift away from global value chains. During the pandemic, the 

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