IMF Warns Global Inflation May Persist, Urges Central Banks to Act
July 26, 2021
The International Monetary Fund (IMF) is warning that there is a risk that inflation around the world may be more than transitory, and the group is pushing central banks to take pre-emptive action.
Inflation in the U.S. hit its highest level in more than a decade in May, and many other economies around the world have seen similar spikes in consumer prices. The question of how long-lasting this inflationary period will be has become key for investors and central banks across the globe.
The IMF expects inflation to return to pre-pandemic ranges in most countries in 2022, according to the group’s latest World Economic Outlook update. It warns, however, that “uncertainty remains high” and that there is a risk that inflationary pressures could become more persistent. The report singles out persistent supply disruptions and sharply rising housing prices as some of the factors that could cause inflation to remain high. The groupd notes that the current spike in prices may be an impetus for central banks to begin normalizing thier fiscal policies, either by tapering off asset purchasing programs or reconsidering their timeline for raising interest rates.
The IMF kept its global growth forecast for 2021 unchanged at 6%, but raised its forecast for 2022 to 4.9%, up from the 4.5% it predicted in April. The IMF notes, however, that the current outlook is heavily dependant on global vaccination campaigns. While many advanced nations have reached a vaccination level above 50%, globally, just 13.8% of the world’s population is fully vaccinated.