April 22, 2024

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The chief economist of the International Monetary Fund warns that inflation may remain high until 2025

The chief economist of the International Monetary Fund warns that inflation may remain high until 2025

The chief economist of the International Monetary Fund, Pierre-Olivier Gourenchas, said continued core inflation means central banks may have to keep interest rates high for longer. afp_tickers

This content was published on Apr 11, 2023 – 22:30
minutes

(AFP)

The chief economist of the International Monetary Fund told AFP, on Tuesday, that the factors that pushed inflation to record levels in the world may continue until 2025.

Prices have been rising around the world since the rapid reopening of the global economy in the wake of the COVID-19 pandemic. Inflation has continued to rise due to Russia’s invasion of Ukraine last year, causing commodity prices to skyrocket.

“Inflation is still with us,” Pierre-Olivier Gournchas said in an interview in Washington shortly after the International Monetary Fund raised its inflation forecast for this year to 7%.

Despite a vigorous and concerted campaign by central banks to curb rising prices by raising rates, inflation in many countries remains well above 2%, the target set by the US Central Bank (Fed) and those of other countries.

“In particular, core inflation has not begun to decline significantly towards target,” Gorinchas said of food and energy prices.

“It probably won’t happen until the end of 2024 and maybe 2025,” he added.

He said continued core inflation meant central banks would have to keep interest rates high for longer.

Such a decision would put additional stress on a financial system already battered by the dramatic collapse of California’s Silicon Valley Bank (SVB) last month.

The fall of SVB was followed by the collapse of other regional banks in the United States and the merger under pressure of the Swiss investment bank Credit Suisse in favor of its rival UBS.

Gorenchas said that “very aggressive intervention” by the Federal Reserve, the Swiss National Bank and others had helped contain the immediate challenges unleashed by the SVB bankruptcy, but warned that “pockets” still had potential challenges.

“We are in a situation where there are high levels of stress in the market,” he said.

The real estate sector is one sector of concern, in part due to the slow reinvigoration of desk work in many cities around the world during the post-pandemic period.

Gorynych warned that there may be other financial institutions such as SVB that are highly exposed to interest rate risk, which could cause problems if rates remain high while central banks battle inflation.

Gorenchas said countries that do not have the financial tools to help fight inflation are also suffering.

He concluded, “One has to be very vigilant to make sure that the weak places are reinforced and strengthened.”

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