Davos 2023: Stemming the Cost of Living Crisis

This transcript, generated from speech recognition technology, has been edited for web readers, condensed for clarity, and may differ slightly from the audio.

Francine Lacqua We have an all-star panel, which I would love to first invite to sit down.

With inflation surging at historical levels and real wages being in free fall throughout most of 2022, of course, intensifying human capital of the cost of living crisis, risks to deepen economic scarring from the pandemic. At the beginning of 2023, now here in Davos, policymakers and business leaders face an array of challenging decisions to try and shield the most vulnerable in the short term to address some of the systemic drivers of worsening living standards and deepening inequality beyond 2023.

So I am delighted to have on the panel today Christian Lindner. He's Federal Minister of Finance for Germany. Gita Gopinath, of the International Monetary Fund. Alan Jope, Chief Executive Officer of Unilever and Laura Tyson distinguished professor of the Graduate School of Berkeley. So thank you all for joining us. This is not an easy topic, but it's one maybe that we need to spend a bit of time just to try and understand the underlying causes of inflation, the cost of living crisis. Gita, can you give us an overview, what you think? First of all, have we seen the worst in terms of inflation and the pressure this is putting and also these underlying causes?

Gita Gopinath: Yes, thank you and it's a real pleasure to join this panel. As you said, it's a tough topic to talk about, but I think is actually a little more easier to do so now than if we were having this conversation about six months back.

Six months back things were really tough. Inflation was at very high levels, especially headline inflation, which includes the cost of energy and the cost of food across the globe. We saw a global rise in inflation in the second half of last year, and these two factors were a big part of why we had this. Now we've seen energy costs come down quite significantly. We've seen food prices come down, but still remain elevated relative to before the pandemic. So actually, I would make a distinction between what we're seeing in terms of energy markets versus in terms of food. I think in terms of food, we still have food security problems as a major concern, but we have inflation coming down. And so the cost of living has gone down over time. Now, what is tricky, of course, is that wages haven't kept up with the cost of living. So there's been a lot of erosion in real wages and you see the consequences of that this year. You can see unrest in different countries in the world and social unrest is something we need to worry about. Would you like me to go into the factors behind this?

Francine Lacqua: Factors, please. Yes.

Gita Gopinath: Okay. So in terms of the drivers for the big splurge in inflation last year, I think I would start off by saying that we had to see an imbalance between demand and supply in several sectors. So for one, even before Russia's invasion of Ukraine, we had energy prices going up, we had oil prices going up quite sharply because we had a pretty strong recovery from the pandemic as a consequence of substantial stimulus that was provided both in terms of monetary policy and fiscal policy to the world as a whole. So that generated a big sharp increase in demand without the supply coming through very quickly. It was also a period when people were spending a lot on goods as opposed to services, because the pandemic was not over and so people were still hesitant to go to restaurants. They were buying a lot of goods.

And so we saw a global component of goods inflation rising everywhere. And of course, following Russia's invasion of Ukraine, we had a double knock on energy prices. It was different, was really bad in parts of the world, like Europe, where you had gas prices go up, you know, three to four times. So these were several of the factors that drove the inflation.

And of course, what's bringing it down now is the slowing global economy, which is coming from tight monetary policies in several parts of the world. But also we've been lucky with the milder weather. We also had 2022 was a year when China's demand for several of these commodities were actually low because they were still living under zero-covid policy. Several of those things can change this year, but let me stop there.

Francine Lacqua: Minister, do you assume — thank you Gita — do you assume that actually inflation will remain high for a pretty long time? It's coming down, but it still remains high from historic levels.

Christian Lindner: Well, we are witnessing high levels of inflation this year, and the outlook for the next year and for 25 remains on a higher level than we used to see in the past, but there is already a decline. And the outlook, the economic outlook for Germany, for example, will be updated. At the moment we expect 7% and I don't want to spoil, but I expect a decline of the inflation rate. If you allow, I would like to underline one political aspect. We have heard the economic assessment which I fully share, but we have to tell people and we have to tell low-income countries that one of the most important reasons for the higher inflation rates is Russia's unprovoked war of aggression against Ukraine. There are some narratives which focus to see the sanctions we made decisions on. But the key reason for higher inflation rates, for example, in the European Union is Russia's war.

When it comes to Germany, if I may add, we have this very strong dependency especially on Russian energy imports in our domestic market. We were ridiculously dependent on Russia and now we are making efforts to overcome this situation. And I'm happy to tell you we built already two LNG terminals within some months. And if you compare the old German speed had been 20 years for one airport and all we are able to build LNG terminals in months. And so, this very special situation poses an opportunity for Germany to improve our overall competitiveness by supply side measures.

Francine Lacqua: Thank you, Minister. Laura, how difficult is it to break down actually the causes of inflation? So how much of it is war? How much of it is structural issues that have been here for quite some time?

Laura D'Andrea Tyson: So I think that economists continue to debate this and maybe Gita has the most recent research. There is, among economists, the general view: ‘well, how much of this was due to the fact that we really pumped up demand to get quickly out of COVID? And how much of that was the fact that supply came back much more slowly than anticipated.’ So essentially the problem is it's demand-supply. If you thought you were pumping up the demand, but you thought the supply would come back kind of normally, then you had all of these supply chain disruptions and you had logistics disruptions and you had shipping disruptions. And so, I don't think from my point of view, that is the most important question anymore. The question now is what do we do going forward? What do we do going forward? We are where we are.

Francine Lacqua: But Laura, if you don’t understand where it’s coming from, it’s very difficult to assess —

Laura D'Andrea Tyson: It’s demand and supply. So basically, you know, what's happening in the world is we've got the central banks pulling back on demand. We've got the developed economies and the developing economies pulling back on the fiscal stimulus, to the extent that they had one, pulling them back. So we're working on the demand side and we actually are also working on the supply side. If I think about the Biden administration, for example, it's done a lot on opening up the ports. It's actually worked hard to get the logistics system back under efficient, rapid recovery. It's done a lot in terms of strategic use of the Strategic Petroleum Reserve, actually putting oil in and now actually buying oil to put back into the system now that the price of energy has changed. So I think all I would say is rather than debate how much was demand versus how much is supply, let's say that both factors are there and that actually you have policymakers acting on both sets of factors. You actually do, and I think that's important.

And I just want to point out one positive issue here that hasn't been mentioned so far, and that is inflationary expectations, because part of the concern of the central bankers and the fiscal authorities, the macro authorities, and this would include the IMF, obviously, was once you let the inflation genie out of the bottle, you would end up with self-reinforcing mechanisms because as people expected structurally higher inflation they would create structurally higher inflation. And if you look at the medium- to long- term measures of inflationary expectations, they suggest that people still expect maybe not that the inflation rate will go quickly down to in the US the 2% target, but it might go reasonably quickly down to around 3%, which actually may end up being a place we can be for quite some time in a healthy fashion.

Francine Lacqua: Alan, what are you looking at? Unilever's one of the biggest food companies in the world. You're dealing with inflation day in, day out, and you also have to make a decision on whether you pass that on to consumers.

Alan Jope: Yeah, and I think there's three enormous threats to our business, which is the climate emergency, the loss and destruction of nature and rising inequality. And it's the inequality challenge that inflation is really amplifying enormously. I think 75% of the world's population live in a country where the Gini coefficient over the last five years has got worse. The gap between rate and that's triggering, yes, a cost of living challenge, but also social unrest and anger. I humbly suggest actually the central banks and inter-governmental bodies were very slow calling inflation. We could see it coming for quite some time before it started to get called out.

And maybe I just put some numbers against it. So, Unilever revenues in 2021 were €52 billion. On that, we have a cost of goods sold of €24 billion. And last year we suffered four and a half billion euros of cost inflation on a base of 24. So, it's a very, very material, unprecedented number. The last thing we want to do, the last thing we want to do, is take prices up. It affects competitiveness, it disturbs volume in the market. So, our first reflex is to go to productivity savings, change the mix in our business. But ultimately, we did land price last year and the consumer did not react as we had anticipated. There was a far lower volume elasticity than we expected, and I think that was because of pent up household savings that buffered the consumer, there was much less downtrading than we expected to see. Premium segments in most categories remain quite robust in food in health care in personal care, and the world is not flat. We saw more of an effect in Europe, much less of an effect in particularly Southeast Asia, South Asia, Africa, Latin America, places that are used to economic volatility stood up very well.

And our best read right now is that there's another two and a half billion euros of costs coming through in this calendar year. So, I think the panellists are suggesting we may be past peak inflation. I think that's right. We are certainly nowhere close to peak prices. So, the consumer is going to see the cost of food, personal care, products of everyday commodities is going to continue to rise. And I think most households, particularly in Europe, are going to feel the squeeze.

Francine Lacqua: Minister, do you agree that we've reached peak inflation and how long are you expecting the German government to continue to subsidise your citizens?

Christian Lindner: Well, I hope so. We presented the ‘protective shield’ for our private households and small and medium enterprises. And we have an amount of up to €200 billion for 23 and 24 to pay subsidies in a form of electricity price and gas price break. But now we already have to think about an exit, and we cannot allow ourselves to continue to spend these amounts. Even Germany has its budgetary limits, and it's crucial to return to sustainable, to sound, public finances. On the one hand, we must not further fuel inflation and on the other hand we have to let the central banks do their work. They have a high responsibility for fighting inflation and I really welcome the change in monetary policy, which we have seen last year. It's a journey which has just started, I think, and we must not further fuel inflation. And if I may, and we have to work on the causes for inflation. And domestically it is the high energy price level. On the European level, I think it's a lack of competitiveness as well.

Francine Lacqua: And we'll talk a little bit about electricity prices. But if you look at the milder winter we've had, if you look at the price of gas, that's gone down. Do you think you won't spend those € 200 billion?

Christian Lindner: From my point of view today, we won't need €200 billion.

Francine Lacqua: Because it's getting easier.

Christian Lindner: The price levels are lower than we expected. We have less hardship cases. And so, my expectation is we won't need the whole protective shield of €200 billion, which is good news because German state is paying more for servicing all debt.

Francine Lacqua: Alan, you were nodding.

Alan Jope: I think there's one big unknown that none of us would have predicted: that China would be where they are right now and that they would have come out of COVID so extraordinarily quickly. There's two trillion of excess household savings in China right now, and we're gearing up for revenge spending by Chinese households who have been locked down for three years. And that's going to show up in travel and domestic consumption. And I think that could be the disrupter that slows down the ending of inflation. That's a very big variable in the supply and demand construct. So, I think that's one to watch carefully.

Francine Lacqua: Gita, is there a danger that we are talking at cross-purposes because inflation can come down, but for the people that have lost the most during the pandemic, the cost of living is very real and is not going anywhere.

Gita Gopinath: So indeed, you know, even if inflation comes down, prices are high because we don't have deflation. We just have lower levels of inflation. So, the prices have gone up. You know, how much of a hit that's had on households and on consumption varies across countries. So, you know, in the US, for instance, there were there was a lot of generous support provided to households during the pandemic. That meant that the savings of households have grown quite a bit. And in fact there is still a fair bit of that excess savings left, which is one possible upside to spending and inflation that could happen.

I think in the developing parts of the world is where you really see the distress, which is, you know, the cost of living has dented their incomes and that's been a big problem. So in terms of, you know, the point you raised about has inflation peaked? We do believe that in terms of headline inflation for the global economy, we think it peaked in 22 and it's likely to keep coming down. But if you look at the more stickier components of inflation, which is services sector inflation, for instance, I think there's more stubbornness in there and that's going to be a challenge for central bankers.

Francine Lacqua: So, Gita, what do you see as a prolonged, I guess, cost, you know, the risks of a prolonged cost of living crisis for the most vulnerable groups, even if inflation comes down?

Gita Gopinath: I think there's a real risk here. Like I said at the beginning, I'm actually particularly worried about food security because we know that, you know, food prices have come down, but they're are still -- raw food prices have come down, but they're still about 30% above 2019 levels. And we know that the pass through from raw food prices to retail prices takes a while. So we haven't seen the effect yet. And we're likely to see retail price inflation of food going up especially in the emerging and developing world.

Francine Lacqua: Laura, how do you see this panning out? If we have this cost of living crisis that is prolonged, you know, what are the right policy mixes to address it and what is the ultimate legacy of this?

Laura D'Andrea Tyson: Well, I almost want to say that without calling it a cost of living in crisis, let's call it what existed before and is going to continue to exist, and that's a living wage crisis for many, many people. That is a living wage crisis in the United States, maybe for the bottom 20% of the population. It just has been. And if you look at in the US, where the major components of cost of living are food, we've talked about gasoline, transportation we've talked about. But housing is the largest single one. And that was a cost-of-living crisis in the United States before. And it's going to be a cost-of-living crisis going forward. So, I want to make that distinction here. The inflation of these key areas of importance to cost of living has exacerbated what was a living wage or a poverty problem throughout the world. And as Gita said, what we've seen is we've actually seen instead of a reduction in people living in poverty, we've seen an increase in the level of people living in poverty. We've seen a worsening of the Gini coefficient. So it's exacerbated a problem which existed before and which we have not solved.

Francine Lacqua: Minister, you live this day in, day out. I mean, housing in Germany is a concern, is becoming less affordable, especially for young families. What are some of the things that you have introduced or can introduce to make it easier?

Christian Lindner: Well, to reduce housing costs, we need to build and this means we need public funding and subsidies, especially for poorer families and vulnerable households on the one hand, and on the other hand, we need more effective, less bureaucratic permitting procedures in Germany. This is the problem of Germany. We have private sector capital, we have know-how, and we have interested companies and investors. But it takes -- it took too long time. We are working on it. And may I ask or may I add one aspect? The special situation in Germany is that we are at the moment losing collective welfare due to the higher prices for energy imports. The German business model for too long time based on very cheap energy imports. And this is why we could afford a higher level of taxation, for example. And now we have to reinvent our business model. And my expectation is higher competitiveness for the German private sector will lead to the ability to pay higher wages, to reduce the burden for the private households by paying better loans and wages.

Francine Lacqua: It has also been suggested that real estate company BImA right, should take out loans and build state housing. Is it something that you rule out?

Christian Lindner: I won't allow this. BImA is the state-driven public sector company. It builds the buildings for ministries and military areas. It's not for families and people.

Francine Lacqua: That's clear. Laura, what -- Alan, you had something to add?

Alan Jope: Well, I just wanted to pick up on what Laura was saying about this idea of a living wage. The reason why I frame my opening remarks in the context of rising inequality is that this is a long-term trend. It's not a short-term cost of living crisis, it’s a long term inequality crisis. And there's a concept of a fair living wage which is paying people enough to feed, house, clothe and educate themselves, in some cases transport as well. And, you know, Unilever, four years ago, we said, well, of course, we’re a well-run company. We must pay all of our people a fair living wage. So we started well, what is a fair living wage? And there's multiple standards. So we picked a standard and we looked ourself in the mirror. It turned out there were pockets of the world where we were not paying a fair living wage. We got busy with that, and we've now rectified that. Everyone who works for Unilever makes a fair living wage. We've now said everyone who provides products and services to Unilever will pay their employees a fair living wage by 2030 and we've got 93 of our suppliers signed up right away to pay their. And so that amplifies us from an impact of hundreds of thousands of people to millions of people. And this is not charity. People who are paid properly are less likely- you get lower attrition, you get higher productivity, you get better motivation. It is a strong financial incentive to pay people profits properly. And so I would ask all the business leaders in the room and the regulators in the room to consider a fair living wage as an opportunity for your business. Because we shouldn't be running our economies and running our businesses on slave wages, poverty, wages. So I think it's a call to action here to pay people properly.

Francine Lacqua: Alan, the last 12 months, have you increased wages to match inflation? So 8-10% increases?

Alan Jope: It's very different in different parts of the world. So our global wage bill will be just slightly lower than inflation for 2022, same in 2023. But enormous differences in different countries around the world.

Francine Lacqua: Minister?

Christian Lindner: I completely understand and share your concern when it comes to inequality. And we have to support the most vulnerable in our societies. But well I would like to focus on our middle classes, people who are able to afford who are able to afford a standard of living. Who were able to afford their own properties. And for them, the situation is changing. They now can't afford the cost of living and they can't reach their own properties. And so, in the German and probably European perspective, we are doing a lot for the most vulnerable, paying welfare subsidies. But we have to ask what can we do to stabilise the qualified people who are working hard, playing by the rules and now are witnessing that they can't afford their lifestyle, lifestyles, a way of living they have learned from their parents, for example. And this leads to, well, a renaissance of competitiveness so that our companies are able to pay fair wages and lead to a new financial surrounding so that those people can afford loans and mortgages for their properties.

Francine Lacqua: So, Laura, given what the Minister and Alan and Gita have just said, what's the right policy mix to deal with this?

Laura D'Andrea Tyson: Policy mix. Well, I indicated that I thought at the beginning these are not traditional macro demand and monetary policies. So you have to go into the. From a federal point of view or a state, I do a lot of work for the state of California which is a big economy, if you look at the composition of the budget in terms of what you're spending money on and you look at composition of the revenue stream and in terms of what you are taxing, what you can bring in to support the spending on the budget side, because we're not talking about major deficit reduction or deficit enhancing spending. So, in this case, I would say if you if you think about what the federal government of the United States has done, we've said long term, how can we get at more affordable cost of living? One is to work on improving logistics infrastructure. I mentioned ports. Part of the problem here, certainly through COVID and the supply chain and the slow recovery on the supply side was logistics issues. And so, the bipartisan infrastructure bill has a lot in that area. Another area, of course, obviously, is climate and trying to deal with the reality that over time we're going to have to do energy transition away from carbon-based fuels to other kinds of fuels. And if we can give tax incentives, and there are many, many tax incentives in our IRA (Inflation Reduction Act) bill to basically reduce the cost to a consumer of buying an electric car or of using all kinds of- if we think about the goal here for climate of electrifying everything. We've put tax credits in for everything to electrify, to try to get people cheaper access to the electrification faster. So those are a couple of examples where it's working on the supply side where you think policy can actually encourage more supply. You know, on climate, just let me mention and I know this is true around the world, there is a lot of interesting stuff going on in the private sector with improving agricultural techniques, whether it's how you seed, how you irrigate, how you harvest, to improve the efficiency of that and over time to reduce the cost of food through improving the technologies. So there's a lot that I think is in the area of enhancing technological development to deal with sectors. I want to say that that housing is the most complicated and it's the most complicated because there are resistance to the use of land for this purpose. So you talked, Minister, about the difficulty of getting zoning. You know, in California we have a huge housing crisis. It has been recognised at the federal level for years. Most of those zoning laws are made at the local level and most localities do not want to build additional housing. They don't want the drain on the education system, on the health care system, on the transportation system, on the park system, on nothing. And therefore, this is going to be to some extent one of the hardest nuts to crack. Policymakers are having a really hard time with this.

Francine Lacqua: Getting people behind them.

Gita Gopinath: So just make a couple of points. Firstly, since there's been a focus on the more secular features of the cost of living, I think we should agree that if we can bring inflation down from 10% to 2%, we would be much happier. I think we lived with 2% inflation in many parts of the world for a very long time. If we can bring inflation durably down to that level, I think that would be success and macro policies, Laura, I agree with you on the supply side measures, macro policies are going to be critical to that. So I think it's very important for inflation. Aggregate demand growth to supply depends upon monetary policy stance and fiscal policy stance, and therefore it's very important to stay the course, bring inflation down durably. The second thing, and I think Alan's point was, you know, we saw inflation coming sooner if you looked at food and if you look at sectoral products, especially food, relative to, say, central bankers did. And I think this is a lesson to be learned from these last couple of years, which is the central bank thinking monetary policy thinking was that you kind of could ignore sectoral price movements if you see big movements in sectoral prices. You could see through that because those things tend to be very volatile and monetary policy works with lags. So, you don't want to rush in and raise interest rates because you saw food prices go up by 20%. I think what we've learnt in the last two years is that when you are in a world where you have demand coming back strongly and you have sectoral supply shocks hitting at several margins, in that case, you really can't see through sectoral supply shocks. So, I think that's the lesson we've learned and it's something we have to keep in mind because we are not out of the woods when it comes to supply shocks. We still have a climate transition that has to happen. We have to make sure we have secure energy. We still have China that's coming back. And I agree with you, one of the risks to inflation going up is how strong the rebound will be in China. I mean, right now there's a bit of a disconnect between the markets and what central banks have been communicating. The markets expect that we're heading towards the 2% target really quickly in the US and the Fed will be there to cut interest rates very soon. Again, you have to keep in mind that there are all these uncertainties around the world, including what will happen to energy prices as the Chinese economy comes up. So we have to stay the course. The second thing I would make in terms of the more structural side of inflation is it is important for countries to diversify the sources of where they buy goods from heavy reliance on only one country, we know Germany has seen as that experience can create a lot of trouble, and so diversification is very important. But the answer is certainly not to bring all your production home, which is a risk that we see and it is a significant risk to the global economy. The reason we had three decades of being able to keep inflation down was because we had trade with many countries in the world. That put cost pressures down for households and for firms. But I see the tendency now in response to the pandemic and the war to go maybe the other extreme and to say the only solution is for us to do everything in-house. And that is the perfect recipe for us to live with high inflationary pressures for a long time.

Francine Lacqua: But Gita, on the monetary policy points, is there a danger that so we go from inflation 8% to 4%, 5%, and actually central banks will have to put a lot of economies in a recession? We'll see job losses. And so, the cost of living crisis will get worse to get to that 2% target.

Gita Gopinath: You know, we haven't seen the softening in the job market that we typically see going around with the big increase in interest rates. So, when we say that 2023 is going to be a tough year and tough of several economies compared to last year, it is because the labour market is where we are likely to see unemployment rates go up. We’re at record low unemployment rates in the US and in the Euro area, record lows right. Everything we know about how monetary policy works when you've tightened interest rates so much is for the unemployment rate to go up. That's how you bring down inflation durably. The question is, how much will it take? But at this point, there's really only one way for it to go.

Francine Lacqua: Minister, what are you going to do for that middle class that you say is being squeezed so much? I mean, do we need to reform the electricity markets?

Christian Lindner: Yes, we have to reform the electricity market. We have to use reduce the burdens, for example, in taxation, we have to improve the framework conditions for our SMEs in Germany and all this supply side measures. And this is crucial. I remind us of Joe Biden here in Davos 2000, I think 17, when he delivered a speech concerning the American middle class, and he warned that if we forget them, they would forget us the elites and they are probably looking for other representatives. And afterwards we saw what happened in the US.

If I may, there's one very interesting aspect. You mentioned the serious risk of fragmentation of the global economy and we see protectionism. I have my concerns with the Inflation Reduction Act and we need to see the wide consequences in this situation of supply chain bottlenecks, inflation. And there are some criticisms about globalisation. And I think at the moment we have a period of opportunity, a window of opportunity. Russia's war against Ukraine brought us as well, your partners, together and we were able on the G7 level under the German presidency last year to found climate club. I think this is an impressive example of policymaking power and so why stopping there? We should continue these efforts. Instead of having kind of a trade controversy between the US and the European Union, we should consider whether there is an opportunity for ‘friendshoring,’ as my U.S. colleague Janet Yellen suggested. So we should have a different level of ambition. Why not start to negotiate a global trade agreement of liberal democracies?

Francine Lacqua: I know a number of European leaders have voiced concerns about this Inflation Reduction Act. Could Europe not do its own IRA?

Christian Lindner: No, we mustn't. A competition who is able to pay more subsidies would be a threat to sustainable public finances in Europe and frankly, our next generation EU funds, it's about €800 billion. In comparison to the IRA, I think we are doing a lot. So, it's not trade war, it's trade diplomacy we need.

Francine Lacqua: Laura, and actually, the same question to all of you, are you optimistic that the cost of living crisis will get better? Or will it get worse before, then it eases off a bit?

Laura D'Andrea Tyson: Well, I think the question is similar to have we seen a peak inflation rate? And I think we have. I think traditional monetary policy and fiscal policy is going to continue to battle to bring it down. I think it is true and unfortunate that the only way that monetary policy and fiscal policy does that is to create slack in the labour market. That's what it does. What one hopes is that the unemployment rate doesn't go up too much, that relationship between the ability of monetary policy to bring the inflation rate down and how much you have to rely on that unemployment rate going up, that relationship is different now. And that's I know what Jerome Powell and the Fed is hoping. But I think that we are we are on a course to bring the inflation rate down. And I just want to say, because I don't want this to be a debate between the US and Europe. But what I really think we need is exactly cooperate. Much of the IRA is about climate and what we need to do is we need to work together to basically use subsidies and tax policy to accelerate the speed, to accelerate and scale all of the technology requirements to address climate change. That's what we need to do.

Christian Lindner: And we have to mitigate the negative side effects on partners, I would suggest.

Francine Lacqua: No, no, no, no. I'm saying if we think about that as a general goal, we should be able to structure the policy so as to mitigate those effects. But, you know, you're a political- you are appointed by politics. It is very hard to do this. You're spending national resources, your country's resources, and the politics of the Congress led very much, in particular a couple senators, led very much to the writing of that piece of legislation.

Alan Jope: I'm not particularly optimistic, because the cost-of-living crisis disproportionately impacts those at the bottom of the pyramid. There is so much talk about tightening rates and about stimulus spending. I think the only way to break the long-term trend of rising inequality is productivity. I think the minister’s right. You know, ultimately productivity. No one's talking about productivity as a sustainable way out of the inflation environment that we're in right now. I think the private sector has got quite a lot to offer on how you tackle productivity. But I just think it's going to take time and the people who are suffering the most will continue to suffer for quite a long time. And this fragmentation of global supply chains and near-shoring, on-shoring, friend-shoring, whatever you call it is, frankly, another inflationary pressure in the world economy.

Gita Gopinath: So if our projections are right, we do have inflation coming down globally this year and next up. Of course, we've been surprised many times. And I think, you know, last year at this time, nobody expected Russia's invasion of Ukraine. So that happens. So, things can go terribly wrong.

But the baseline is for inflation to come down and come down across the globe. I think that will help with cost of living. I think the perennial problems of inequality and those at the bottom and the issues of housing will remain. I think those are harder nuts to crack and those will take some more time. But I think we should be, you know, feel good about the fact that inflation comes back down to the more reasonable levels.

On fragmentation, I'm going to put my global hat on and say we really want all countries to be able to work together to come up with solutions. And maybe putting my completely pragmatic hat on, I would say at least at the minimum, when it comes to things like food exports, exports of fertilisers, basic essentials for the world, that we have multilateral solutions and not fringe solutions, friendshoring or inshoring or any of those complications of that.

Francine Lacqua: Thank you, Minister. Will it get worse or easier, the cost-of-living crises from here?

Christian Lindner: The German media report that there is a lot of pessimism here in Davos. I think we should change the perspective from doubts and concerns to opportunities and challenges. We are not objects of our fates. We are not passengers of the flight. We are pilots. And so, let's work on policy solutions for the challenges we have to cope with.

Francine Lacqua: And you see the willingness of government leaders and politicians to come together and find a common solution?

Christian Lindner: Well within the European Union, among the member states, there is the willingness to do and we are making efforts, for example, to deepening our single market and to make progress on Capital Markets union. So there is a reason for optimism.

Francine Lacqua: Okay. Well, thank you all for a very interesting panel. Christian Lindner, Alan Jope, Gita Gopinath and Laura Tyson. Thank you. Thank you.

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