Inflation rises to multi-decade highs, global economy on the verge of recession
By Zion Rufus
As the risk of recession looms over the global economy, the Bank for International Settlements has warned that the global economy risks entering a new era of high inflation.
The Bank further revealed that the war in Ukraine, coupled with soaring commodity prices, financial vulnerabilities, and lingering disruptions from the pandemic has thrown the world on the verge of recession as “stagflation dangers looms large”.
The BIS analysis showed that in high inflation environments, price changes for individual items like food or gas tend to exert a bigger and more persistent effect on overall inflation than they do when inflation is low.
“At first, higher inflation was seen as transitory, reflecting increased relative prices for a small number of pandemic-affected items,” the BIS said.
“But it proved persistent, broadening over time. In response, central banks generally brought forward the timing and pace of policy tightening. Higher inflation and shifting expectations of the policy response led to bouts of financial market volatility, with financial conditions tightening substantially as the year progressed, albeit from an exceptionally easy state.”
According to the BIS report, the mix of high inflation, high and volatile commodity prices and significant geopolitical tensions bear an uncomfortable resemblance to past episodes of global stagflation.
The report stated further: “During transitions from low to high inflation regimes, inflation pressures tend to become self-reinforcing, as individual price changes start to matter more for people’s behaviour. The key for central banks is to act quickly and decisively before inflation becomes entrenched. If it does, the costs of bringing it back under control will be higher. The longer-term benefits of preserving stability for households and businesses outweigh any short-term costs.”
As the inflationary pressures tighten across the globe, the BIS has urged central banks to act quickly and decisively before inflation becomes entrenched.
“If it does, the costs of bringing it back under control will be higher. The longer-term benefits of preserving stability for households and businesses outweigh any short-term costs.”
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