Saturday, January 22

IMF asks central banks for plans to act quickly if inflation runaways

Gita Gopintah, chief economist at the IMF.

Gita Gopintah, chief economist at the IMF.

For months, many central banks, governments and offices of some analysts have been sending reassuring messages about the inflation as a transitory phenomenon linked to the exit from the unprecedented crisis that has caused the coronavirus pandemic. Each time, however, there is more doubts on how long and with what depth this rise in prices is going to continue and more fear that it will continue. And this Tuesday the International Monetary Fund, in another sign of the “Tremendous” growing uncertainty, he has urged central banks to prepare plans that allow to act with speed if inflation rushes out or the risks become too steep.

“Although monetary policy can generally ignore temporary rises in inflation, central banks must be prepared to act quickly if risks materialize at this time. unexplored recovery”, Has written in the report on World Economic Outlook presented in Washington Gita Gopinath, chief economist at the IMF. And they are being asked to walk the fine line between “acting patiently to support recovery” and, at the same time, being prepared for that swift action if necessary. “Banks must draw contingency actions, establish clear references and act in line with that communication“Gopinath insisted at a press conference.

The economist also asked “clarity and consistent actions “ and urged to avoid “Unnecessary political accidentsIt’s shaking financial markets and complicating global recovery, ”citing as examples the political struggles in Washington over raising the debt ceiling, messy debt restructurings in the property sector in China, or trade and technology tensions. growing between the two nations. He also recalled that although the responses must be designed according to the particularities of each country, in the multilateral talks a central role should be the consideration of the possible effects of monetary and fiscal actions that are not synchronized.

Lowered prospects

An entire chapter is devoted to inflationary fears in the report, a document in which the IMF slightly cuts global growth forecasts for this year to 5,9%. It is a drop of one tenth compared to what the agency had calculated in July, driven in part by the decline in the forecast for the expansion of advanced economies from 5.6 to 5.2%. The correction affects, above all, advanced economies, with cuts of one point in the US (the growth forecast for this year drops to 6%); 0.6 points in Canada (up to 5.7%) or half a point in Germany and Spain (up to 3.1% and 5.7% respectively).

Following downward revised numbers for 2021 (while calculations for 2022 are maintained in a growth that will moderate until the 4,9%) there are other reasons and in the report there are also more alerts. Because the IMF underlines also growing divergences and deep imbalances between countries in the health, political and economic response to the pandemic.

Now, with the risk of the contagious delta variant still alive, the virus continues to threaten the way out of the crisis, especially before the giant gap in vaccinations among countries according to their level of development, which leads the IMF to urge to close this gap in access to immunizations (about 60% of the vaccinated population in advanced economies, only 4% in the poorest countries) . “The facts have made it abundantly clear that we are in this together and the pandemic will not end anywhere until it ends at all“, Said Gopinath, who urged to ensure that” broad liquidity and debt relief to poorer nations”.

Inflation and supply problems

The IMF sets other priorities such as the fight against the climate crisis, but this time it is the inflationary rise the one that takes the central part of the attention. This has been substantial in many countries, including the US, UK and Germany and even more pronounced in emerging or developing economies, but it is also heterogeneous, as Gita Gopinath, chief economist of the IMF, recalled at a press conference, highlighting that “in advanced economies the risks are there.”

Both she and the report specifically point to the imbalances between supply and demand which, like the pandemic, are dragging on. And although the IMF forecast is that both the increase in demand and the disruptions in supply chains as the inflationary tensions they cause, it is foreseen that it will begin to return to inflation levels prior to the pandemic a middle of next year.

Gopinath, however, wanted to emphasize the “tremendous uncertainty.” “We have never seen a recovery of this kind, where there is shortage in the labor market at the same time there is high levels of unemployment; with ports unable to unload containers”He declared, pointing specifically to the United States. “We have to be particularly vigilant so that these supply side shocks do not end up dislodging inflation expectations or creating wage spirals because then they would start to appear in core inflation and would require strong monetary policy responses, “said the economist, who announced that the IMF will pay particular attention to signals such as this potential wage inflation or for the purposes of rise in the prices of the living place.

Your report also alerts you to the rise in prices of food, that have risen a 40% since the start of the pandemic. It is something with especially serious implications in low-income countries, where food insecurity is already higher and the weight in the poorer households and the risk of social unrest”.

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