BASEL, Switzerland (AN) – Central bankers face "difficult choices" as they grapple with raising rates to tame inflationary pressures that probably won't ease anytime soon.
That's the main message from the chief of the Bank for International Settlements, the Swiss-based international organization that functions as the central bank for central banks, while issuing its annual report on Sunday.
"For the first time in years, many central banks now face the challenge of taming high inflation," BIS General Manager Agustín Carstens wrote in the foreward to the 242-page annual report.
"While some inflationary pressures should ease as demand patterns normalize and new supply comes on line, the timing and path to that correction is uncertain, and central banks face difficult choices in the period ahead. Restoring low inflation must be the priority."
From deflation to inflation
After the most severe global pandemic in a century, the world went through the largest economic contraction in 90 years and the strongest economic rebound in decades, Carstens told the annual general meeting of BIS.
"In the space of a few months, we went from fears of mass unemployment and a wave of business bankruptcies to a rapid, albeit uneven, recovery. Supply chains that had collapsed as firms cancelled orders were suddenly unable to meet demand," he said. "Bottlenecks emerged, particularly for durable goods. After breaching multi-decade lows, many commodity prices touched record highs. And concerns about deflation gave way to surprising inflation."
Then the Russian war in Ukraine hit, adding to inflationary pressures, particularly on food and energy markets.
"In much of the world, inflation is now at multi-decade highs. At the same time, growth projections, which were rosy just a few months ago, are quickly being downgraded," he said. "The sudden shifts in economic momentum have naturally posed huge challenges for central banks and fiscal authorities."