Central banks need to 'get the job done' when it comes to getting inflation back under control, the Bank for International Settlements has said, urging them to avoid the mistakes of the 1970's by declaring victory too early.
There are concerns, however, that though inflation in many major economies is beginning to come down, it will remain stubbornly high due to volatile energy and food prices, as China's economy reopens and as workers demand higher wages.by the most in nearly two years in January amid a surge in wage gains, adding to the view among economists that the Fed will continue raising its rates well above 5% this year.
"What you don't want to do at all costs is to repeat the stop-go policies of the 1970s when you are reversing and you then realise that the job has not been done," Borio said. "Then you have to go back and forth." The BIS' report also included research showing that rate rises are more likely to cause financial system stress when private debt levels are high, although tougher "prudential policies" can reduce the risk and give central banks more room for manoeuvre.
Another section looks at how higher commodity prices and the U.S. dollar exchange rate significantly affects the risk of stagflation - weak growth and high inflation - especially in developing market economies.Our Standards:
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