Recent tightening actions by many central banks around the world will help to prevent high inflation fr✨om becoming entrenched, the IMF sai𝄹d on Wednesday.
In a report released ahead of 𓃲the annual meeting of the International Monetꦓary Fund (IMF) and the World Bank, the IMF said the current coincidence of rising inflation and nominal wage growth has led to concerns that a wage-price spiralóin which both wages and prices accelerate for a prolonged period could emerge.
Many economies have seen sharp rises in pr🌃ice inflation since 2021 as adverse supply shocks buffet the global economy and labour markets appear tight in the wake of the acute COVID-19 shock, it said.
These inflation rises have raised concerns among some observers that prices and wages could start feeding off each other and accelerate, leading to a wage-price spiral dynami𝓰c, said the report.
In a blog post, Joh🍌n Bluedorn, Deputy Division Chief on the World Economic Outlook in the IMF ís Research Department, said if inflationary shocks start to come from the labour market itselfó such as an unexpected, sharp uptick in wage indexation that could moℱderate the effects of falling real wages, pushing up both wage growth and inflation for longer.
For monetary policymakers, understanding the expectations process is critical. When expectations are more backward-looking, monetary pol꧟icy tighteningóincluding through clear communications by the central bankóshould be stronger and more fr♒ont-loaded in response to an inflation shock, he wrote.
In that sense, recent tightening actions by many central banksócalibrated to economy-specific ci꧋rcumstancesóare encouraging. They will help to prevent high inflation from becoming entrenched and inflation from deviating from target for too long, Bluedo𒊎rn said.
