According to IMF managing director Kristalina Georgieva, global interest rates will likely rise until 2023, when central banks will begin to cool prices in response to heated prices.
Even though commodity prices have leveled off and started to fall, Georgieva said the decline is due to recession risks, and not necessarily because inflation has been tamed.
“Central banks are stepping up to control inflation, it’s a priority. They have to to keep going until it’s clear that inflation expectations remain firmly anchored,” Georgieva said at the G-20 meeting in Bali on Friday.
“At the moment we still see inflation going up; we have to throw some cold water on it.”
A catastrophic world pandemic, terrorist acts on supply chains, and an escalation of tensions in Ukraine have been playing havoc with availability. Several key commodities, including food, fertilizer, and energy, have seen their prices spike.
Even before the epidemic and war, food prices were climbing, but they have accelerated as a result of these crises. The World Bank recently announced that food prices reached a high never seen before between March and April of this year. The Food Commodity Price Index of the World Bank showed an increase of 15% in the price of the past two months, as well as an increase of 80% over the last two years.
According to the Food and Agriculture Organization, the global malnourished population will rise by 7.6 million in 2018, and then 19 million in 2023.
“At the moment we still see inflation going up; we have to throw some cold water on it” said by Kristalina Georgieva, IMF.
The price of oil is dropping now, since it was at $120 a barrel early in June and is now at $100 a barrel.
Despite this, consumer inflation in the U.S. reached a 40-year high of 9.1% last month, a level described by Treasury Secretary Janet Yellen as “unacceptably high”.
Even though some data to determine inflation has a lag, it is clear to Georgieva, according to CNBC, that inflation has not yet been slowed.
Furthermore, she said that it is crucial to control inflation otherwise incomes will erode, especially in the poorest parts of the world.
Financial crises in the past helped Janet Yellen realize how important it is for governments to have plans in place in case of economic catastrophes, with those plans typically geared towards making the severity of recessions shorter, shorter, and giving the worst economic circumstances less of an impact on the population.
Indonesian Finance Minister Sri Mulyani Indrawati said at the G-20 on Friday that controlling demand was key at this juncture as fiscal and monetary easing measures implemented during the Covid-19 pandemic recovered demand, but not supply.
For instance, Indonesia lifted its 3% fiscal deficit cap – for three years – to inject stimulus into the economy during these “extraordinary” times, she said.
“We have to admit that demand has been boosted by countercyclical policy,” she said.
“Two years ago, we tried to rescue the economy from both supply and demand collapse because of the pandemic.” Sri Mulyani said.
