JACKSON HOLE, Wyoming (Reuters) – Central banks need to urgently address inflation and recognize the supply that drives prices higher, said Agustín Carstens, managing director of the Bank for International Settlements. The shock is likely to persist, putting continued upward pressure on prices. .
Many of the world’s major economies are battling inflation levels not seen in half a century, and post-pandemic supply disruptions are a big part of the price surge.
While disruptions are expected to last only a few months, Carstens believes a range of factors, from deglobalisation and demographic changes to more expensive production in emerging markets, could constrain supply more durable.
“The global economy appears to be on the cusp of a historic shift, as many tailwinds of aggregate supply that are holding back inflation appear to be turning into headwinds,” said Director Carstens. A group of central banks commonly referred to as the world’s central banks.
“If so, the recent pickup in inflationary pressures may be more persistent,” Carstens told the Fed’s Jackson Hole Economic Symposium.
Global alliances are also disrupting supplies as a factor in Russia’s war in Ukraine, and access to global value chains or financial markets is no longer a given, he said.
Central banks have been raising interest rates to fend off the threat of persistent inflation, but nearly all, including the Federal Reserve, have been criticized for recognizing price pressures too late.
Still, others are still far behind the Fed. The ECB has only raised rates once, and at zero, its main rate is still providing exceptional stimulus.
According to Carstens, central bank policy has little impact on supply-side disruption, so policymakers should focus only on inflation.
“The central bank cannot hope to remove all economic air pockets, but must first focus on keeping inflation low and stable,” Carstens said. “Monetary policy needs to address the immediate challenge of addressing the current threat of inflation.”
