A creative response to inflation
As central banks raise interest rates to rein in rising prices, consumers and businesses tap into an innovative spirit to lower costs.
People shop at a market in Dhaka, Bangladesh.
AP
Ever since the 2008 financial crisis, the world鈥檚 central banks have gradually found merit in coordinating with each other 鈥� particularly during volatile episodes in the global economy. Yet never have they flocked together like they did this week. From Washington to Hanoi, 11 central banks raised interest rates, signaling a consensus that the highest worldwide inflation in four decades requires an aggressive response.
One reason for the urgency is to prevent a mental spiral that inflation can provoke. When consumers fear that prices will keep rising, they may start spending more now to avoid spending more later. That added demand, in turn, puts added pressure on prices. 鈥淭he longer the current bout of high inflation continues,鈥� U.S. Federal Reserve Chair Jerome Powell said on Wednesday, 鈥渢he greater the chance that expectations of higher inflation will become entrenched.鈥�
That concern is based on the way people responded to rapidly rising costs in the past, such as the 1970s. What makes this bout with inflation different is that many companies and consumers are no longer waiting for central banks to restore stability. To an unprecedented degree, workplaces and factories are challenging an 鈥渋nflationary mindset鈥� with initiative and creativity.
鈥淔orced to adjust to circumstances beyond their control and armed with technology that gives them more access to expertise than ever, consumers are developing a stronger sense of self-reliance,鈥� an Accenture study of consumer behavior found in July. 鈥淎s people become more self-reliant, they are also rethinking the values that drive them.鈥�
That is reshaping their decisions about buying and saving. A new study by the consulting firm Gartner, for example, found consumers are relying more on new apps to compare prices and determine the shortest travel routes. That, in turn, is forcing companies to adapt. No longer able to assume that they can just pass along higher production costs to their customers, they are seeking new technology-based answers to production costs and supply-chain flows. A KPMG survey of corporate executives in August found that 65% anticipated increasing their technology investments by as much as 20% to mitigate the effects of inflation.
That points to an unintended beneficial consequence: Inflation is accelerating what Morgan Stanley calls 鈥渄eflation enablers鈥� in sectors that are increasingly central to the long-term global good, such as clean energy and mass energy storage. This is challenging assumptions that the shifts required by climate change would be costly and economically disruptive. On the contrary, the investment firm now forecasts that artificial intelligence and green solutions to long-term energy security are among the 鈥渂road categories of technologies that combat the effects of inflation.鈥�
A moment of global economic uncertainty is revealing its hidden uses. Fueled by inflation, transformative shifts in business investment and consumer behavior are showing that creative abundance is outpacing material scarcity.