WB talks risks to global inflation's further increase

Economy Materials 8 June 2022 14:09 (UTC +04:00)
WB talks risks to global inflation's further increase
Maryana Ahmadova
Maryana Ahmadova
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BAKU, Azerbaijan, June 8. Global inflation is projected to peak in about mid-2022 and to decline to about 3 percent in mid-2023, Trend reports via Global Economic Prospects from the World Bank (WB).

According to the report, although the decrease is expected, this still will be about 1 percentage point above the pre-COVID-19 pandemic period.

Russia-Ukraine conflict has resulted in near-term inflation forecast increase due to both countries being major exporters of various commodities.

The war-driven supply shortages and shipping disruptions have added to price increases in commodity markets, on top of the sharp price rises since mid-2020, and to global inflationary pressures. Concerns about persistently above-target inflation have already prompted central banks in most advanced economies and many emerging market and developing economies (EMDEs) to tighten monetary policy amid a sharp growth slowdown. Despite this tightening, as of May 2022, real policy rates (adjusted by actual inflation) remain deeply negative in the average advanced economy (-5.2 percent) and in the average EMDE (-3.2 percent),” the WB said.

The inflation rate is expected to remain above target in a majority of advanced economies and EMDEs well into 2023, the report noted.

However, global inflation is for now projected to return to its 2019 target by 2024. Nevertheless, there is a growing risk that it may remain high as global supply disruptions persist and some of the structural factors that have held back inflation over the past three decades are decreasing, the WB noted.

“If supply disruptions persist or commodity prices continue to climb—in the event of a protracted war in Ukraine, for example, or recurring pandemic outbreaks and movement restrictions in China - inflation could remain above central banks’ target ranges in many countries,” the report added.

Thus, if inflation remains high, the risk will grow as well, as expectations of higher inflation will be supported by wage and price setting behavior. Inflation expectations based on the financial market have already increased after Russia-Ukraine conflict, and supply disruptions caused by pandemic outbreaks and control measures in major EMDEs, the WB said.

There are also concerns that there may be a more significant decline in inflation expectations, which will force the central banks of large advanced economies to tighten refinancing rate more, which will add to slowdown in growth and even drift some economies into recession, the report added.


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