World’s top central bankers see supply chain problems prolong


The world’s leading central bankers have acknowledged that rising inflation in many advanced economies this year may remain high for a while – and they are watching carefully as inflation picks up again, although they still expect it to drop as the pandemic-induced supply cuts calm down. Make sure that hot price pressures don’t become more permanent.

Federal Reserve Chairman Jerome H. Powell spoke at a panel Wednesday with European Central Bank chief Christine Lagarde; Andrew Bailey, Governor of the Bank of England; and Haruhiko Kuroda, governor of the Bank of Japan.

Mr. Powell noted that while demand is strong in the United States, factory closures and shipping problems have curtailed supply, put pressure on the economy and pushed inflation above the Fed’s average 2 percent target.

“It’s frustrating to admit that 18 months later, getting people vaccinated and getting the Delta under control still remains the most important economic policy we have,” Powell said. “It’s also frustrating to see bottlenecks and supply chain issues not getting better – actually, on the margin, it’s apparently getting a little worse.”

“We’re probably seeing it continue into next year and holding back inflation longer than we thought,” Powell said.

The Fed chair’s comments were closely aligned with comments by Mr. Bailey and Ms. Lagarde, who also saw uncertainties regarding persistent supply chain bottlenecks as a risk.

“We’re back from the brink, but not completely out of the woods,” Ms Lagarde said of the economic recovery. “We still have uncertainty”

He said supply chain disruptions are accelerating in some sectors, with increases in energy prices and potential new waves of the coronavirus pandemic, which may be vaccine resistant, are an area to watch.

“Monetary policy cannot resolve supply-side shocks,” Mr. Bailey said. “What we need to do is focus on the potential runoff effects of these shortfalls.”

The joint appearance of some of the world’s most powerful economic officials, sponsored by the European Central Bank, came during a tumultuous week in financial markets. As stocks rallied on Wednesday morning, sharp fall on Tuesday as government bond yields rise. Investors have been shaken by a political standoff over the US debt ceiling and problems in China. heavily indebted real estate industrythe fact that global central banks are poised to turn down economic support, and the possibility that recent rapid price increases may continue.

The boom in inflation has swept through Europe and the United States this year, with consumer demand booming, but factory closures and shipping bottlenecks keep supply shortfalls for many goods. Central bankers have consistently proven that these price increases are temporary. As businesses adapt to the post-pandemic recovery, they say, supply chain tangles will unravel. These won’t last forever as consumers spend the savings accumulated during the pandemic and are supported by government incentives.

But while economic officials expect the inflationary boom to be temporary, they are increasingly admitting that it may take longer than they originally anticipated.

Consumer price inflation in the USA 5.3 percent In August and the Fed’s preferred gauge of inflation – personal consumption expenditures, or the PCE index – grew 4.2 percent until July of the year. August PCE data is scheduled to be released on Friday.

Consumer prices are expected to peak.”a little over“After 4 percent this year in the UK, the central bank’s target has doubled.

Elsewhere in Europe, inflation is also high, although the jump isn’t as big. Eurozone inflation hit 3 percent in August, the highest value in nearly a decade. However, price increases there are expected to slow more in the coming years than in the United Kingdom and the United States.

Japan is a notable outlier among advanced economies with slow demand and near-zero inflation. Weak inflation leaves less room for central banks to help the economy in tough times and can make it a problem, fueling a cycle of recession.

Central bankers in Continental Europe, the UK and the US are grappling with how to respond to the price jump. If they overreact to temporarily soaring inflation by factors that will soon fade, they could unnecessarily slow labor market recovery – and even doom themselves to a very low-inflation future, as is the case with Japan.

But if customers begin to expect steady inflation amid today’s boom, businesses may charge higher wages as they try to cover rising labor costs, fueling an upward cycle in prices.

Monetary policymakers want to avoid such a situation, which could force them to raise interest rates sharply and reduce demand and tame prices, encouraging a serious economic slowdown.

“There is tension between our two goals: maximum employment and price stability,” said Powell. “Inflation is high, well above target, but still there seems to be a recession in the labor market.”

“Managing this process over the next few years is, I think, the highest and most important priority, and it will be very difficult,” he added.

For now, most top global officials are preaching patience as they try to gradually reorient their policies from full economic support. Fed preparing a plan slowing down the purchase of large-scale bonds, which could continue to pump money into the financial system even if the policy rate bottomed out, reducing many borrowing costs. The Bank of England signaled that policy should be tightened soon, and the European Central Bank slowing down its own pandemic-era purchasing program.

“The historical record is full of examples of understatement,” Powell said, noting that economic policymakers tend to underestimate economic damage and inadequate support recovery. “I think we avoided that this time.”



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