High inflation isn’t going away

LONDON, Jan 31 (Reuters Breakingviews) - Central bankers reading the International Monetary Fund’s latest update to its World Economic Outlook should grab a strong coffee and go back to work. The report, released on Tuesday, indicates that global inflation has peaked but policymakers will still have to fight harder to vanquish it. Worldwide growth in consumer prices will fall from an annual average of 8.8% in 2022 to 6.6% in 2023 and 4.3% next year, the IMF reckons. A drop in energy costs and weaker demand – hammered by rising interest rates - will drive much of that decline.

Yet that won’t be enough to return inflation to the 2% rate targeted by many central banks. Even in advanced economies, where inflation is set to fall from 7.3% in 2022 to 4.6% this year, the IMF reckons prices will still rise by 2.6% in 2024. That suggests interest rates will stay high even after the U.S. Federal Reserve and European Central Bank stop hiking. Consumers will face elevated living expenses and dearer mortgages, while companies will have to deal with more expensive capital and reduced demand. In the race to beat inflation, the last few yards will be the hardest. (By Francesco Guerrera)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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