Globalisation is inflationary risks: Bank of France 04/09/2006 00:00

PARIS, Sept 4, 2006 (AFP) - The Bank of France said Monday that globalization could aggravate inflationary pressures that would justify greater vigilance on monetary policies.

A bank study noted that while globalisation had spurred disinflation over the past 15 years, the trend is now reversing itself.

It said the opening of formerly protected economies and their inter-dependence, as well as the emergence of low-cost producers such as China, had increased price and salary competition and had thereby helped to control inflation.

But the bank also found that "the disinflationary effects of globalisation are weakening, even reversing themselves today".

It said producers of manufactured goods, such as China, were increasing their demand for energy resources and are driving up energy  prices.

In addition, the inflationary impact of higher commodity prices trends to offset the disinflationary effect of lower industrial prices, the study determined.

The fact that globalisation is today a less powerful constraint on inflation "helps explain why, in all the major areas of the world, monetary policies are oriented -- with varying degrees and timetables -- toward tightening," the bank said.

Copyright AFP

Subject: French news