Mohamed El-Erian, the chief economic adviser for the financial services firm Allianz, has warned of far-reaching repercussions of the new COVID Omicron strain, which may seriously shake up the markets.
In an interview with Fox News, El-Erian argued that “the marketplace is worried about two things: one, that yet another variant of COVID is going to hit them hard” in terms on additional restrictions slapped on travel and food sectors.
“And issue number two, the marketplace is worried also that this will cause more inflation, that the supply chain will be disrupted even more. Those two things together: lower growth, high inflation are stagflation, and that’s what the market is worried about right now”, the economist asserted.
An economic condition caused by a combination of slow economic growth, high unemployment, and rising prices, stagflation occurred in the US and UK in the 1970s as a result of monetary and fiscal policies as well as an oil embargo.
Referring to the US, El-Erian told Fox News that the time is ripe “for a change in policy at the Fed”, which he claimed “may be easier with someone who hasn’t repeated over and over again that inflation is transitory, don’t worry about it, it’s going away”.
“Inflation is not transitory and it’s really important for the Fed to realise this, because the worst thing that can happen is that in addition to the supply disruption, which they can’t do anything about, in addition to labour shortages, they destabilise our expectations and we change behaviour even faster”, he pointed out.
El-Erian said that he doesn’t think the US government has “an issue with demand” and that “the problem is the supply side”.
The economist warned that “unless we [the government] fix the supply side, it will contaminate the demand side”, adding, “So, that’s why it’s really important to focus on two big issues that we have. Supply disruptions and inflation”.
WHO Says Not Enough Data on New Strain Yet
The World Health Organisation (WHO) has, meanwhile, asserted that there isn't enough data yet to state that the new Omicron coronavirus variant is more dangerous than the Delta strain.
"The number of people testing positive has risen in areas of South Africa affected by this variant, but epidemiologic studies are underway to understand if it is because of Omicron or other factors", the WHO said in a statement.
This was echoed by Melita Vujnovic, the WHO's representative in Russia, who told the YouTube show "Soloviev Live" that "it seems to me that there should be no panic, as we do not know yet […] if this virus bypasses a vaccine, how much it will decrease effectiveness of any vaccine - we do not know this, at the moment".
On Friday, the UN health agency identified the new strain, first detected in South Africa, as one of concern, as it is reported to be more transmissible and possibly more dangerous. The WHO dubbed it Omicron, the 15th letter of the Greek alphabet.
The new strain sparked alarm across the world, with many countries imposing travel bans on southern African nations or closing their borders altogether.