Washington, October 5 (PTI) Recent tightening measures taken by many central banks around the world will help prevent high inflation from taking hold, the IMF said on Wednesday.
In a report released ahead of the annual meeting of the International Monetary Fund (IMF) and the World Bank, the IMF said the current coincidence of rising inflation and nominal wage growth has raised concerns that a spiral wages-prices – in which wages and prices accelerate for an extended period – could emerge.
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Many economies have seen a sharp rise in price inflation since 2021, as adverse supply shocks rock the global economy and labor markets appear stretched following the acute shock of COVID-19, a he declared.
These increases in inflation have raised concerns among some observers that prices and wages are beginning to feed off each other and are accelerating, leading to a wage-price spiral, according to the report.
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In a blog post, John Bluedorn, deputy division chief for global economic prospects in the IMF’s research department, said that if inflationary shocks start to come from the labor market itself – such as a sharp rise unexpected impact of wage indexation – this could moderate the effects of falling real wages, pushing both wage growth and inflation for longer.
“For monetary policy makers, it is essential to understand the process of expectations. When expectations are more backward-looking, monetary policy tightening, including through clear central bank communications, should be stronger and earlier in response to an inflationary shock,” he said. writing.
“In this sense, the recent tightening measures taken by many central banks – calibrated to the specific circumstances of the economy – are encouraging. strays too long from the lens,” Bluedorn said.
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