The International Monetary Fund (IMF) warned on Tuesday that inflation risks would prove to be more than temporary, prompting central banks to take pre-emptive action.
The issue of inflation is now divided in the investment community, and market participants have been busy thinking about whether the recent surge in consumer prices will continue. Data show that the US consumer price index reached 5.4 per cent in June, the fastest pace in nearly 13 years. Inflation in the UK reached 2.5 per cent in June, the highest level since August 2018 and above the Bank of England's 2 per cent target.
IMF believes that in most cases, these price pressures are temporary. "inflation in most countries is expected to return to pre-epidemic levels by 2022," IMF said in the latest World Economic Outlook update released on Tuesday.
However, IMF warned that "uncertainty remains high".
"temporary pressure is likely to become more persistent and the central bank may need to take pre-emptive action," IMF said.
Rising prices have increased the likelihood that central banks around the world will begin to rein in their ultra-loose monetary policies, such as market-friendly stimulus measures such as tapering asset purchases.
Earlier this month, Jerome Powell, Fed chairman, said the job market was "still some way off" from what the Fed would like to see before it curtailed its stimulus measures and that inflation was "likely to remain high in the coming months before slowing down".
The IMF pointed out earlier this month that if the US provided more fiscal support, it could further increase inflationary pressures and lead to an earlier-than-expected increase in interest rates.
Gita Gopinath, chief economist of IMF, said in a blog post on Tuesday that "more lasting supply disruptions and sharply rising house prices are likely to lead to sustained Qualcomm."Some factors of swelling. "
She also warned that "inflation in some emerging markets and developing economies is expected to remain high in 2022, in part because of continued food price pressures and currency depreciation."