Mark Carney: [De]Globalisation and inflation

Text of the 2017 IMF Michel Camdessus Central Banking Lecture by Mr Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, Washington DC, 18 September 2017.

The views expressed in this speech are those of the speaker and not the view of the BIS.

I. Introduction

During his term as Managing Director, Michel Camdessus oversaw the second great wave of globalisation. The Berlin Wall fell, capital controls were liberalised, the euro was constructed, and China prepared to join the WTO. Product and financial markets became increasingly integrated, with trade growing at an annual rate of 10% and capital flows of 20%. The effective global labour force doubled, and more than a billion people were lifted out of poverty.

Central banks are now grappling with one consequence of such enormous achievements - the impact of globalisation on inflation.

All central banks must consider the cyclical relationship between global slack and domestic inflation; the degree to which secular forces from globalisation affect local inflation dynamics; and how global factors influence the stance of domestic monetary policy itself. And now some central banks may need to consider the implications for price stability if the process of globalisation were to slow or go into reverse.

These issues are particularly relevant to the Bank of England as the UK inflation outlook will be importantly influenced for some time by a process of de-integration under Brexit.

Today, I would like to draw on this example to illustrate how global factors influence domestic inflation dynamics and the ability of central banks to achieve price stability.