International Monetary Fund warns of ‘scary’ global inflation

The International Monetary Fund warned on Wednesday against a “Inflation that scares” at the global level, more marked in emerging countries, and called on governments to put in place a “A solid monetary framework” to be able to control it.

A few days after the start of the annual meeting of the IMF and the World Bank in Washington, the body chaired by Kristalina Georgieva unveiled the analytical chapter of the Global Economic Outlook Report, known in economists’ jargon as WEO for its acronym in English.

The report marks a certain alarm of the same title: “Inflation is scary”, warns the world.

“Since the start of 2021, the Consumer Price Index (CPI) has increased in advanced economies and emerging markets, driven by the firm demand, scarcity of inputs and rapid rise in raw material prices ”, notes the report.

In the future, he continues, “se expects headline inflation to peak in the final months of 2021, and is expected to return to pre-pandemic levels in mid-2022 for advanced economies and emerging market groups, and with upside risks. “

The Fund expects annual inflation in advanced economies to reach a maximum of 3.6% on average during the last months of this year then start to fall in the first half of 2022 to a 2 percent, in line with the central bank’s goals, say agency economists Francesca Caselli and Prachi Mishra in a blog post about the report.

However, emerging markets will experience “faster increases”, which will come at 6.8% on average and then they will decrease to 4 percent. “The projections, however, come with considerable uncertainty, and inflation could be high for longer.”

Factors contributing to inflation include rising housing costs and prolonged supply shortages in advanced and developing economies, as well as pressure on food prices and currency depreciations in emerging markets.

Food prices in the worldo increased by about 40 percent during the pandemic, a particularly serious challenge for low-income countries, where these purchases represent a large part of consumer spending.

The IMF warns that “prices could rise much faster due to continued supply chain disruptions and sharp swings in commodity prices.”

“Inflation during the pandemic has been entrenched,” but there is uncertainty about what will happen in the future. “A key question is what combination of conditions could cause a persistent rise in inflation, including the possibility of expectations being disengaged and helping to trigger a self-fulfilling price spiral.”

These past episodes have been associated with a sharp decline in currency depreciation in emerging markets and often followed by growing budget and current account deficits, they note.

The report notes that the pandemic has caused significant price movements in some sectors, particularly food, transport, clothing and communications.

He also warns that “Prices could increase much faster due to continued disruptions in the supply chain, large fluctuations in commodity prices and a de-anchoring of expectations ”.

“When expectations are not anchored, inflation can take off quickly and be difficult to control”, highlights the Fund.

The agency indicates possible courses of action for governments to seek to reduce inflation. “Policymakers need to distinguish between being patient in supporting recovery and being prepared to act quickly. More importantly, they need to establish strong monetary frameworks ”, to control price increases.

Possible measures “could include early signs to de-anchor inflation expectations, including forward surveys, unsustainable current and fiscal balances or sharp currency swings. The case studies show that while strong political action has often brought inflation and expectations under control, strong and credible central bank communication has also played a particularly crucial role in anchoring opinions. “

“The authorities must be atYou try the triggers for a perfect storm of price risk which could individually be benign, but which, when combined, can lead to increases much faster than expected