China protests over lockdown measures could mean inflation gets stuck at 4% amid supply chain disruptions, Mohamed El-Erian says
REUTERS/Daniel Munoz
- Protests in China could fuel supply-chain issues and keep inflation stuck at 4%, Mohamed El-Erian warned.
- The economist noted that supply-chain issues have been a major driver of US inflation.
- "Inflation will not get back to 2% quickly. That's what it means for us," he said.
Protests in China over the government's unrelenting lockdown measures could mean US inflation will get stuck at 4%, as chaos will continue to grip supply chains, according to top economist Mohamed El-Erian.
"You cannot re-wire supply chains overnight," the Allianz chief economic advisor said in an interview with CNBC on Monday, referring to the potential for protests to rattle global supply chains. That could bring supply and production uncertainty for key tech firms and worsen US inflation, El-Erian warned.
"What does it mean for us as a whole? It means the possibility that between what's happening in China, between the changing globalization as a whole, between reshoring, nearshoring, we may have an issue where inflation gets stuck at 4%," he warned.
Protests against China's COVID-19 lockdown policies broke out in Shanghai on Saturday, after locals claimed a deadly apartment fire was unable to be put out due to COVID-19 control measures. Officials denied that was the case, but public protests quickly spread to over 16 locations, including China's major business hubs Shanghai and Beijing, CNN reported on Monday.
Violence broke out at a Foxconn iPhone factory in Zhengzhou, sparked by to the company's response to China's COVID-19 measures. The disruption could lead Apple to fall short by 6 million iPhone Pro models this year, a source told Bloomberg, causing the tech giant's stock to slip 2% on Monday.
Supply disruptions like those unfolding in China could last for several years, El-Erian previously said, and have the potential to hammer the economy with 1970s-style stagflation. He added that inflationary pressures today have shifted to service prices and wages, which are both largely affected by supply-chain issues.
"Inflation will not get back to 2% quickly. That's what it means for us," El-Erian said. He added protests likely wouldn't affect the Fed's decision to keep rates higher for longer, predicting the central bank will hike by 50 basis points in December, followed by a 25 basis-point hike at its January meeting.
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