The global economy has reached a “critical and dangerous point” in the fight against inflation. The Bank for International Settlements warns in its Annual Report. “Policy makers are faced with a unique constellation of challenges,” the institute points out.
On the one hand, he notes, “central banks have taken tightening measures to bring inflation under control: prices are rising too fast“. On the other hand, “financial vulnerabilities are widespread: debt levels – private and public – are historically high; assets are growing too fast; asset prices, especially real estate, are high; and risk-taking in financial markets was widespread during a phase in which interest rates have remained historically low for an unusually long period”. “High inflation, the surprising resilience of economic activity and the first signs of severe stress in the financial system”, these are the elements that, according to the BIS, characterize the economic situation.
“The longer inflation persists, the stronger and longer the policy tightening required, and thus the greater the risks to financial stability.” The Bank for International Settlements notes this in its Annual Report. ‘Last mile to bring inflation back to target will be harder – Central banks’ commitment to bring inflation down is clear. Last year saw the more rapid and synchronized tightening of global monetary policy in recent decades”, warns general manager Agustìn Carstens in the preface to the report. “Monetary tightening was necessary, but not painless”, observes Carstens, underlining that “interest rates may have to remain higher for longer. Over the next few years, economies will have to rely on supply-side reforms, rather than monetary and fiscal stimulus, to promote sustainable growth.”