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The International Monetary Fund warns that inflation may be persistent

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The International Monetary Fund warned on Tuesday that there was an inflation risk that would prove to be more than just passing, prompting central banks to take precautionary measures.

This issue is currently dividing the investment community, which has been active pondering whether the recent increase in consumer prices is here to stay. In the US, the CPI came in at 5.4% in June – the fastest pace in nearly 13 years. In the UK, inflation reached 2.5% in June – the highest level since August 2018 and overhead the Bank of England’s 2% target.

For the most part, the Washington-based institution sees these price pressures as temporary. “Inflation is expected to return to pre-pandemic levels in most countries in 2022,” the fund said in its latest WEO update released on Tuesday.

He cautioned, however, that “uncertainty remains lofty”.

“There is a risk, however, that temporary pressures may become more persistent and central banks may need to take precautionary measures,” the IMF said.

Higher rates increase the chances that central banks will start to rein in their very accommodative monetary policies, such as cutting back on market-friendly incentives such as asset purchases.

More persistent supply disruptions and a sharp rise in housing prices are some of the factors that can lead to persistently lofty inflation.

Gita Gopinath

Chief Economist at the International Monetary Fund

Earlier this month, US Federal Reserve Chairman Jerome Powell said the labor market was “still far” from where the central bank would like to see prior it cuts stimulus. He added that inflation “is likely to remain lofty in the coming months prior it calms down.”

The International Monetary Fund had already indicated earlier this month that if the United States were to provide more fiscal support, it could hoist inflationary pressures further and lead to higher interest rates earlier than expected.

“More persistent supply disruptions and a sharp rise in housing prices are some of the factors that could lead to persistently higher inflation,” Gita Gopinath, chief economist at the International Monetary Fund, said in a blog post on Tuesday.

It was also warned that “inflation is expected to remain lofty until 2022 in some emerging and developing market economies, in part related to ongoing food price pressures and currency depreciation.”

Global recovery ‘not guaranteed’

The International Monetary Fund on Tuesday kept its global growth forecast at 6% for 2021, but revised its forecast for 2022.

Instead of a GDP rate of 4.4%, as expected in April; The fund now sees a 4.9% growth rate next year.

“The 0.5 percentage point upgrade for 2022 derives in big part from the projected upgrade of advanced economies, particularly the United States, reflecting expected legislation for additional fiscal support in the second half of 2021 and improved health metrics more broadly across the group,” the IMF said. She said.

However, the outlook depends on the vaccination campaigns against the coronavirus.

According to Our World in Data, 13.81% of the entire world’s population is vaccinated against Covid-19 and 13.46% are partially vaccinated. This shows the distinguished difference between developed and developing economies.

In the UK and Canada, more than 54% of all citizens are fully vaccinated. In South Africa, this figure drops to 3.9% and in Egypt to 1.57%.

“Access to a vaccine has emerged as the main fault line along which the global recovery is divided into two blocks: those that could look forward to further normalization in activity later this year (almost all advanced economies) and those that will persevere to confront renewed infections and an increase in COVID,” he said. Fund “Toll of the lifeless”.

The International Monetary Fund warned that “recovery, however, is not guaranteed even in countries where infections are currently very low as lengthy as the virus is spreading elsewhere.”


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