Friday, January 21

Peak world inflation is considered to pose short-term risks to the economy

Global central banks must establish clear strategies to deal with inflation risks as the global economy experiences faster-than-expected cost increases amid an uneven recovery from the pandemic, the OECD said.

While new restrictions to contain the spread of the delta variant are affecting activity in some regions, difficulties in the supply chain and the rise in commodities led the Paris-based organization to raise its forecast from Tuesday on Tuesday. gains in consumer prices this year and next in all groups. from seven countries besides Japan.


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“Short-term inflation risks are on the upside, particularly if stifled consumer demand is stronger than anticipated, or if supply shortages take a long time to overcome,” the OECD said in a report. “An accommodative monetary policy must be maintained, but clear guidance is needed on the horizon and the degree to which any overshoot in inflation will be tolerated.”

The outlook reviewed by the 38-member club illustrates the changing context for global central banks in a week in which at least 15 of them are making monetary decisions and consumer prices rise sharply. Inflation risks are one of the factors that explains why the Federal Reserve on Wednesday could come closer to reducing the pandemic stimulus.

In the OECD forecasts, he now expects inflation in the Group of 20 bloc to be 3.7% in 2021 and 3.9% in 2022. While price pressures will gradually ease in the US. In the US, the organization’s economists estimate that the rate will remain above 3% until next year. .

“Inflation is expected to stabilize at a level above the average rates seen before the pandemic,” the OECD said. “This is welcome after many years of below-target inflation results, but it also points to potential risks.”

Anchored expectations

The outlook falls short of raising the alarm, warning, in line with the views of many central banks, that the current streak of increases should be temporary.

“Supply pressures should gradually fade, wage growth remains subdued and inflation expectations are still anchored,” the OECD said. Still, “a longer period of higher inflation due to persistent supply shortages could further shift expectations.”

With the combination of stronger inflation and uneven growth, the world has lost some growth momentum, according to the OECD. That casts doubt on what kind of economy will emerge from nearly two years of severe turmoil during a global health crisis. The OECD cut its global growth forecast for 2021 from 5.8% to 5.7%.

While central banks and governments have said the recovery is on the right track, the OECD warned that slow vaccination or the emergence of new variants still pose risks. Even if there was better news on the virus front, that could still be problematic.

“There is great uncertainty left,” he said. “Faster progress in vaccine deployment, or a sharper reduction in household savings would improve demand and reduce unemployment, but it could also increase inflationary pressures in the short term.”

© 2021 Bloomberg

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