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Analysis: Climate change: Central banks’ new inflation puzzle

Analysis: Climate change: Central banks’ new inflation puzzle

For Bank of England chief Andrew Bailey, tackling climate change carries inflation risks if you do too little, too late. For Larry Fink, head of investment giant BlackRock (BLK.N), the risk is if you go too fast.

Who's right? The answer will depend on how policymakers, investors and consumers square up to the complex set of variables that, one way or another, will be disrupting the global economy in the not-too-distant future.

World leaders will head to Glasgow in November for United Nations talks to map a smooth path into 2050, the agreed deadline to cut planet-warming emissions to "net zero" and cap global temperatures at no more than 1.5 degrees Celsius above pre-industrial norms.

For Bailey, the longer they wait to adjust policy to the new realities, the greater the economic cost of that adjustment.

"And a disorderly transition, where more severe policies are introduced later in the horizon to compensate, could result in both lower growth and higher inflation from rising energy and materials costs in the economy," he told a Reuters event last week. read more

Fink by contrast focused on the cost of an over-hasty transition. He warned, as an example, that a rapid greening of policies would increase the cost of air fuels and so the price of air tickets, the Financial Times quoted him as saying.

The issue, he said, was whether regulators and governments "accept more inflation to go green".

Such a trade-off may be uncomfortable for those who already worry that unprecedented levels of pandemic stimulus will end up overheating the global economy.

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