The issue is currently dividing the investment community, which has been busy contemplating whether a recent surge in consumer prices is here to stay. In the U.S., the consumer price index came in at 5.4% in June — the fastest pace in almost 13 years. In the U.K., the inflation rate reached 2.5% in June — the highest level since August 2018 and above the Bank of England’s target of 2%.
The IMF on Tuesday kept its global growth forecast at 6% for 2021, but it revised its expectations for 2022.
Instead of a gross domestic product rate of 4.4%, as predicted in April; the Fund now sees a growth rate of 4.9% next year.
However, it warned that “uncertainty remains high.”
“There is however a risk that transitory pressures could become more persistent and central banks may need to take preemptive action,” the IMF said.
Higher prices increase the chances that central banks will start to curb their ultra-accommodative monetary policies, such as a tapering of market-friendly stimulus like asset purchases.
The IMF had already pointed out that if the U.S. were to provide more fiscal support then this could increase inflationary pressures even further and lead to a hike in interest rates earlier-than-expected.
Reference: CNBC
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