The following text is from a speech by Agustín Carstens, General Manager of the Bank for International Settlements (BIS ) at the International Center for Monetary and Banking Studies, Geneva, 5 April 2022:
“After more than a decade of struggling to bring inflation up to target, central banks now face the opposite problem. Inflation is back. The rise in inflation reflects the rapid and goods-intensive economic recovery from the Covid-19-induced recession – bolstered by highly accommodative fiscal and monetary policy – which supply has been unable to fully meet. We should not expect inflationary pressures to ease soon as many of the forces behind high inflation remain in place and new ones are emerging. There are already signs of increased price spillovers across sectors and between prices and wages, as is common in a high-inflation environment. Moreover, the structural factors keeping inflation low in recent decades may wane as globalisation retreats. The inflationary paradigm may be changing. Central banks need to adjust to this new environment, not least by raising policy rates to more appropriate levels. The world economy must learn to rely less on expansionary monetary policies.”
For more analysis RT International reports…
A new era of higher inflation and interest rates is impending as traditional ties between Western countries on one side, and Russia and China on the other, are deteriorating, while the impact of the coronavirus pandemic is driving globalization into reverse, said the head of the Bank for International Settlements, Agustín Carstens.
“A key message is that we may be on the cusp of a new inflationary era,” the general manager of the BIS central bank umbrella group said on Tuesday.
“We need to be open to the possibility that the inflationary environment is changing fundamentally,” Carstens added.
And “if my thesis is correct, central banks will need to adjust”.
The warning comes amid spiking prices for energy and food that are pushing year-on-year inflation in over half of developed economies soaring above 5%, while half of the developing world is expected to face inflation of over 7%. Meanwhile, major economies were forced to raise interest rates from all-time lows.
The supply chain crisis that was sparked by the Covid pandemic and trade wars has been inevitably worsened by the latest conflict between Russia and Ukraine, sending living costs around the world skyrocketing.
The immediate implication would be that policymakers would have to quickly shift their “mindsets” to how to stop inflation running out of control, Carstens said, stressing that the expectations of consumers, businesses and financial markets for how high inflation will go are becoming “unmoored”…
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