IMF Inflation Warning: "Central Banks Must Prepare for Tightening"

Inflation Forecast Raised Compared to July
Growth Rate Projection Lowered by 0.1%P
Supply Chain Issues Highlighted by G2 Growth Rate Decline
"Inflation Must Be Very, Very Cautious"

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] The International Monetary Fund (IMF) warned that central banks around the world must be "very, very vigilant" about inflation as it expects an economic growth slowdown this year centered on advanced economies such as the United States and China. In fact, senior officials of the U.S. Federal Reserve (Fed) have already accepted tapering (reduction of asset purchases) in November as a foregone conclusion.

On the 12th (local time), the IMF released its "World Economic Outlook" report, forecasting this year's inflation rate at 2.8% for advanced economies and 5.5% for emerging and developing economies. These figures rose by 0.4 percentage points and 0.1 percentage points respectively compared to the July forecast. While raising inflation expectations, the IMF lowered the global economic growth rate from the previous 6.0% to 5.9%. The growth rate for next year was maintained at the previously announced 4.9%.

The IMF predicted that inflation would ease next year but emphasized that due to ongoing COVID-19 conditions, supply disruptions, and inflation expectations, which contribute to high uncertainty, central banks must be prepared to act swiftly in response to inflation risks or situations where economic recovery accelerates.

[Image source=Reuters Yonhap News]

Gita Gopinath, IMF Chief Economist, pointed out in a press briefing that while the risk of stagflation similar to the 1970s caused by supply chain breakdowns is being averted, attention should be paid to wage and real estate price trends. She said, "Policy makers must be very, very vigilant about the secondary effects where rising energy prices induce wage increases and core prices rise." The IMF advised central banks not to allow inflation to rise even if it means sacrificing employment recovery.

In this outlook, the IMF downgraded growth forecasts for both the U.S. and China. The U.S. expected growth rate was cut by 1.0 percentage point to 6.0%. China, which leads the global economy alongside the U.S., is also expected to grow at 8.0%, 0.1% lower than the previous forecast, according to the IMF.

This downward revision in growth rates reflects the sluggishness of advanced economies heavily impacted by supply chain disruptions. The growth forecast for advanced economies this year was lowered by 0.4 percentage points to 5.2% compared to July.

The IMF identified potential factors that could further reduce growth rates, such as possible cuts in infrastructure investment budgets in the U.S. and a real estate sector crisis due to the Evergrande situation in China.

The expected growth rate for emerging and developing economies this year was revised upward by 0.1 percentage points to 6.4%. The rise in raw material prices, including energy, which is fueling inflation concerns, is expected to be a positive factor for emerging economies.

South Korea's economic growth forecast for this year remained at 4.3%, unchanged from the July forecast. The IMF initially projected 3.6% in April and raised it by 0.7 percentage points in the July forecast.

The IMF explained that while the global economic recovery continues, the spread of the Delta variant and supply chain disruptions have worsened conditions in advanced economies and low-income developing countries.

This content was produced with the assistance of AI translation services.