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Tuesday, January 25, 2022

IMF: US tied for highest inflation rate, global debt record $226 trillion

The International Monetary Fund (IMF) reported that the US economy is tied for the highest level of inflation in 2021 among developed economies.

IMF data found that the United States and Iceland topped the list of 35 countries for increased consumer prices. The organization noted that the inflation rate for both countries stood at 4.3 percent.

Other notable names in the “inflation rate, average consumer price” category for advanced economies were Puerto Rico (4 percent), Canada (3.2 percent), New Zealand (3 percent), and Germany (2.9 percent).

For the rest of the world, Venezuela ranks highest with an inflation rate of 2,700 percent, followed by Sudan (194.6 percent) and Zimbabwe (92.5 percent).

Speaking at a recent event organized by the World Health Organization (WHO), IMF chief economist Gita Gopinath warned about prolonged inflationary pressures in 2022.

Gopith predicted that the Omicron version could cost the global economy an additional $12.5 trillion, in addition to the current forecast of $5.3 trillion. He said central banks around the world do not have the opportunity to maintain loose monetary policy and low interest rates.

“We are now at a stage where countries around the world do not have the space to keep monetary policy too lax, to keep interest rates extremely low. We are seeing inflationary pressures increasing around the world, Gopith explained.

“And so think about a situation where you can have this pandemic for a long period of time, you have a prolonged supply disruption that’s putting inflationary pressures on, and then we have a real risk of something that we have So far postponed, which is inflationary concern.”

The Federal Reserve building in Washington DC on October 22, 2021. (Daniel Slim/AFP via Getty Images)

Last week, the Federal Reserve’s rate-setting group, the Federal Open Market Committee (FOMC), announced plans to accelerate the tapering of its pandemic-era quantitative easing stimulus and relief program and complete it by March. FOMC rate estimates also suggest three rate hikes next year.

The Bank of England (BOE) raised interest rates for the first time in three years. The European Central Bank (ECB) has stoked rates while cutting its Pandemic Emergency Purchase Program (PEPP).

2022 Inflation Outlook

In the United States, many economists and market analysts expect inflation to remain warm in the first half of 2022, before easing by the end of next year. It is projected that inflation will be around 3 percent at the end of the year, which is higher than the US central bank’s official target rate of 2 percent.

Economic growth concerns have risen in the wake of the Omicron edition. But inflation risk remains the top concern in the next calendar year.

Writing in a research note, RBC Economics pointed to rising commodity prices, easing of fiscal and monetary policy stimulus and higher input costs.

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Economists Craig Wright, Don Desjardins and Nathan Janzen said in the report, “Some of these factors will ease as time goes on, although consumer demand continues to strengthen and additional production capacity is limited.” “With more purchasing power chasing an increasingly scarce supply of goods and services, inflation is likely to remain well above central banks’ target by 2022.”

Morgan Stanley also expects a moderation in global inflation next year, the bank said in a note, adding that “we are now at, or close to, the worst level of supply chain disruption.”

“The main difference in our minds is that temporary inflation is measured in several percentage points, while permanent increase in inflation is measured in tenths,” said Ellen Gentner, chief US economist at Morgan Stanley.

The Fed raised its inflation forecast for 2022 as it expects the personal consumption expenditure (PCE) price index to rise from 2.2 percent to 2.6 percent.

Campaign to vaccinate Americans continues as new Omicron version
People in Manhattan on November 29, 2021 in New York City. (Spencer Platt/Getty Images)

The amendments came shortly after Fed Chair Jerome Powell and Treasury Secretary Janet Yellen retired the word “transient” when discussing inflation during Congressional testimony.

America’s annual inflation rate rose to 6.8 percent in November, the highest in nearly 40 years, led by rising food and energy prices.

Global debt hits record $226 trillion

In a separate report, the IMF confirmed that global debt climbed to $226 trillion, rising 28 percent to 256 percent of GDP last year. It represents the largest single-year debt increase since World War II, fueled by record-high public and private debt accumulation.

“The large increase in debt was justified by the need to protect people’s lives, preserve jobs, and avoid a wave of bankruptcies. If governments had not acted, the social and economic consequences would have been disastrous,” the IMF wrote.

“But credit growth exacerbates vulnerabilities, especially when financials are strong,” the report said. “High debt levels hinder, in most cases, the ability of governments to support recovery and the ability of the private sector to invest in the medium term.”

The study’s authors said it was “important” to strike a fine balance between “policy flexibility, nimble adjustment to changing circumstances, and a commitment to reliable and sustainable medium-term financial plans”. They say this will reduce credit risk and support central banks’ efforts to fight inflation.

In the United States, the national debt exceeded $29 trillion last month.

Andrew Moran

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Andrew Moran covers business, economics and finance. He has been a writer and reporter in Toronto for more than a decade, with bylines on Liberty Nation, Digital Journal and Career Addict. He is also the author of “The War on Cash”.

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