{ "title": "Addressing Inflation Pressures Amid an Enduring Pandemic", "publication": "IMF Blog, December 3, 2021", "sourceUrl": "https://www.imf.org/en/blogs/articles/2021/12/03/blog120321-addressing-inflation-pressures-amid-an-enduring-pandemic", "canonical": "https://www.imf.org/en/blogs/articles/2021/12/03/blog120321-addressing-inflation-pressures-amid-an-enduring-pandemic", "overlayPath": "/en/blogs/articles/2021/12/03/blog120321-addressing-inflation-pressures-amid-an-enduring-pandemic/index.md", "summary": "With inflationary pressures intensifying and Omicron generating new uncertainties, monetary policymakers are facing new and challenging tradeoffs.", "sections": [ { "heading": "Overview", "content": "- Authors: Tobias Adrian, Gita Gopinath.\n- Date: December 3, 2021.\n- Core message: Inflationary pressures are intensifying amid renewed pandemic uncertainty from Omicron, requiring monetary policy responses calibrated to country-specific circumstances.\n- Key judgment: Inflation is likely to be higher for longer than previously thought." }, { "heading": "The global inflation landscape", "content": "- Global drivers:\n - Rising energy and food prices have fueled higher inflation in many countries.\n - High commodity food prices may continue to add to inflation in 2022.\n - About 40 percent of consumption spending in low-income countries is on food.\n- Core inflation patterns:\n - Core consumer price inflation (excluding fuel and food) has risen but with significant cross-country variation.\n - By annualized cumulative inflation since pre-pandemic, core inflation among advanced economies has risen most sharply in the United States, followed by the United Kingdom and Canada; the euro area increase is much less so.\n - Limited signs of core inflationary pressures in Asia, including in China, Japan and Indonesia.\n - Among emerging markets, core is dramatically elevated in Turkey.\n- Median inflation:\n - Recent rise in median inflation for the United States to around 3 percent in October is higher than for other Group of Seven countries.\n- Inflation expectations:\n - Medium- and long-term inflation expectations remain close to policy targets in most economies.\n - United States: long-term inflation expectations have increased but remain close to historic averages and appear well-anchored.\n - Euro area: expectations have increased from levels well below target to now close to it, suggesting better anchoring to the European Central Bank’s 2 percent objective.\n - Japan: inflation expectations remain well below the target.\n - Emerging markets: India, Indonesia, Russia, and South Africa show signs of anchored expectations; Turkey is an exception where the risk of expectations becoming unmoored is apparent." }, { "heading": "Sources of price pressures", "content": "- Demand-side factors:\n - Strong rebound in demand supported by exceptional fiscal and monetary measures, especially in advanced economies.\n - Shift in spending toward goods over services.\n - Wage pressures in some segments of labor markets.\n - United States: more prolonged reduction in labor-force participation relative to other advanced economies, adding to wage and inflationary pressures.\n- Supply-side factors:\n - Supply disruptions caused by the pandemic and climate change.\n - Shipping delays, delivery lags, and semiconductor shortages expected to likely improve in the second half of 2022 under the baseline.\n- Outlook for supply-demand mismatch:\n - Expect attenuation over time, reducing some price pressures.\n - Aggregate demand should soften as fiscal measures come off in 2022.\n- Relationship observed:\n - Countries with faster recoveries to pre-pandemic trends (notably the United States) have seen sharper rises in core inflation relative to pre-crisis levels." }, { "heading": "Varied policy action and guidance", "content": "- Historical context:\n - At the onset of the pandemic, global policymakers synchronized dramatic easing of monetary policy and fiscal expansion to prevent a global financial crisis.\n- Earlier policy stance:\n - Central banks initially could \"look through\" runups in inflation driven by a few sectors and keep interest rates low to support recovery.\n- Changing assessment:\n - Risks of further acceleration of inflation are materializing; supply disruptions and elevated demand are lasting longer than expected.\n - Real rates are even lower than before, implying an increasingly expansionary stance of monetary policy.\n- Country-specific guidance:\n - United States: grounds to place greater weight on inflation risks; appropriate for the Federal Reserve to accelerate the taper of asset purchases and bring forward the path for policy rate increases.\n - More broadly: in countries where recoveries are further along and inflationary pressures more acute, it would be appropriate to accelerate the normalization of monetary policy.\n- Communication and flexibility:\n - Major central banks must carefully communicate policy actions to avoid triggering market panic with deleterious cross-border effects.\n - Policymakers should remain agile, data-dependent, and ready to adjust course given extreme uncertainty, including from Omicron." }, { "heading": "Potentially challenging spillovers and recommendations for emerging and developing economies", "content": "- Spillover risks:\n - Emerging market central banks face greater risk of de-anchoring of inflation expectations and thus may need to tighten earlier.\n - Tightening by advanced economies could cause capital outflows and exchange rate pressures for emerging markets, potentially requiring further tightening.\n- Observed actions:\n - Some emerging markets, such as Brazil and Russia, have raised policy rates sharply despite large COVID-related output shortfalls.\n- Policy recommendations for emerging and developing economies:\n - Prepare for increases in advanced economy interest rates through debt maturity extensions where feasible, thereby reducing rollover needs.\n - Regulators should focus on limiting the buildup of currency mismatches on balance sheets." }, { "heading": "Scenarios and uncertainties", "content": "- Pandemic-related risks:\n - A variant that significantly reduces vaccine efficacy could lead to further supply chain disruptions and contractions in labor supply, pushing up inflationary pressures.\n - Lower demand from pandemic developments could have opposing disinflationary effects.\n - The sharp fall in oil prices following the discovery of Omicron and rapid imposition of travel restrictions signals volatility ahead.\n- Policy tradeoffs:\n - A more frontloaded Fed response to dampen inflation risks could result in market volatility and create difficulties elsewhere, especially in emerging and developing economies.\n - To mitigate such effects, policy shifts need to be telegraphed well." }, { "heading": "Conclusions", "content": "- Policy prescription:\n - Responses to rising prices must be calibrated to the unique circumstances of individual economies.\n - Clear central bank communication is key to fostering a durable global recovery.\n - Where appropriate, accelerate normalization of monetary policy in economies with stronger recoveries and more acute inflationary pressures, while remaining agile and data-dependent.\n- Final judgment:\n - Varying inflation conditions and strength of recoveries across countries, together with sharply higher uncertainty associated with Omicron, necessitate tailored policy responses and careful communication.\n\nSource: Addressing Inflation Pressures Amid an Enduring Pandemic (Tobias Adrian, Gita Gopinath), December 3, 2021.\n\n---\n\n\n References\n\n- World Economic Outlook\n\nSource: https://www.imf.org/en/blogs/articles/2021/12/03/blog120321-addressing-inflation-pressures-amid-an-enduring-pandemic" } ], "bullets": [ "[Markdown version](/en/blogs/articles/2021/12/03/blog120321-addressing-inflation-pressures-amid-an-enduring-pandemic/index.md)", "[Structured JSON version](/en/blogs/articles/2021/12/03/blog120321-addressing-inflation-pressures-amid-an-enduring-pandemic/index.json)", "[Bundle manifest](/en/blogs/articles/2021/12/03/blog120321-addressing-inflation-pressures-amid-an-enduring-pandemic/bundle-manifest.json)", "Authors: Tobias Adrian, Gita Gopinath", "Published: December 3, 2021", "Authors: Tobias Adrian, Gita Gopinath.", "Date: December 3, 2021.", "Core message: Inflationary pressures are intensifying amid renewed pandemic uncertainty from Omicron, requiring monetary policy responses calibrated to country-specific circumstances.", "Key judgment: Inflation is likely to be higher for longer than previously thought.", "Global drivers:", "Core inflation patterns:", "Median inflation:", "Inflation expectations:", "Demand-side factors:", "Supply-side factors:", "Outlook for supply-demand mismatch:", "Relationship observed:", "Historical context:", "Earlier policy stance:", "Changing assessment:", "Country-specific guidance:", "Communication and flexibility:", "Spillover risks:", "Observed actions:", "Policy recommendations for emerging and developing economies:", "Pandemic-related risks:", "Policy tradeoffs:", "Policy prescription:", "Final judgment:", "[World Economic Outlook](https://www.imf.org/en/Publications/WEO/Issues/2021/10/12/world-economic-outlook-october-2021)" ], "alternates": { "markdown": "/en/blogs/articles/2021/12/03/blog120321-addressing-inflation-pressures-amid-an-enduring-pandemic/index.md", "json": "/en/blogs/articles/2021/12/03/blog120321-addressing-inflation-pressures-amid-an-enduring-pandemic/index.json", "bundleManifest": "/en/blogs/articles/2021/12/03/blog120321-addressing-inflation-pressures-amid-an-enduring-pandemic/bundle-manifest.json" }, "generatedAtUtc": "2026-08-27T03:16:15.541Z" }