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Soaring Inflation Puts Central Banks On A Difficult Journey

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  • Central banks in major economies expected as recently as a few months ago that they could tighten monetary policy very gradually.
  • Central bank actions and communications about the likely path of policy have led to a significant rise in real (inflation-adjusted) interest rates on government debt since the start of the year.
  • Amid signs of already poor liquidity, faster policy rate tightening may result in a further sharp decline in risk asset prices - affecting equities, credit, and emerging market assets.

Businesswoman Stands On Long Road With Road Map Painted On It

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By Tobias Adrian, Financial Counsellor and Director, IMF's Monetary and Capital Markets Department; Christopher Erceg, Deputy Director, Monetary and Capital Markets Department, IMF; & Fabio M. Natalucci, Deputy Director, Monetary and Capital Markets Department

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iMFdirect is the policy blog of the International Monetary Fund. Leading economists and officials of the Fund discuss the IMF’s work and advice on economics and finance at a global and a national level.

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Comments (2)

O. Young Kwon profile picture
It’s a flawless Outstanding Post with a very constructive conclusion:

“A key lesson of the high inflation in the 1960s and 1970s was that moving too slowly to restrain it entails a much more costly subsequent tightening to re-anchor inflation expectations and restore policy credibility. It will be important for central banks to keep this experience firmly in their sights as they navigate the difficult road ahead.” (From text)
Inflation from shopping for food is still with us and rising. Water, fruit, vegetables, meat, water continue to increase. Many of these items have doubled since the pandemic started. Watermelons, $11.00, 2 pie crust $3.99 from $1.99, gallon of water from $0.79 to $1.69 etc.
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