World Bank's Basu Says Inflation Can Ease Global Turmoil (Bloomberg)
World Bank Chief Economist Kaushik Basu recommended controlled inflation for developing nations at his speech hosted by the Center for Global Development.
World Bank Chief Economist Kaushik Basu recommended that developed nations let inflation accelerate for a limited period to prompt a faster exit from global economic stagnation he sees lasting two more years.
“Controlled inflation is very difficult but I think for industrialized countries, inflation is a way to balance out some of your debts without picking individuals who are winners and losers,” Basu said in Washington today. “Not a very nice thing to do but you have to do some non-nice things today given the world’s situation.”
Months of respite in the euro region’s debt crisis were brought to an end this week with a fight over a proposed tax on bank deposits in Cyprus, a condition for an international bailout to the Mediterranean island. Treasuries rallied and the euro traded at its lowest level of the year. Cyprus’s parliament rejected the levy today, dealing a blow to European plans to force savers to shoulder part of the country’s aid package.
While liquidity injections by the central banks of rich nations have bought time, they have not solved underlying problems, Basu said in his speech at the Washington-based Center for Global Development, an aid research group.