IMF: “The worst is yet to come”.. Curse of high inflation ‎continues

People around the world are suffering from inflation at levels not seen in decades as prices for essential goods and services such as food, heating, transportation and accommodation soar. Although the peak of inflation may be on the horizon, its effects may worsen

– The reason? Two words: pandemic and war

According to Reuters, a long and comfortable period of limited inflation and low interest rates suddenly ended after the Corona virus pandemic ravaged the world, as governments and central banks continued to support trillions of dollars in companies that closed their doors and families.

This “lifeline” has prevented workers from queuing for benefits, businesses from collapsing, and house prices from falling sharply. But it also led to an unprecedented supply and demand halt

By 2021, with the end of lockdowns and the global economy growing at its fastest pace after a recession in 80 years, the money from these huge stimulus packages has cast a shadow over the global trading system.

Factories that were idle could not operate fast enough to meet demand, safe COVID-19 rules caused labor shortages in the retail, transportation and healthcare sectors, and a boom sparked energy price hikes.

The matter did not stop there, as Russia invaded Ukraine in February, and Western sanctions on the largest exporter of oil and gas led to a rise in fuel prices.

– Why care about inflation?

Known as a “tax on the poor” because it affects those with low incomes, double-digit inflation has increased inequality around the world. While wealthier consumers can draw on savings built up during lockdowns during the pandemic, others are finding it difficult to make ends meet and an increasing number are relying on food banks.

With the onset of winter in the northern hemisphere, the pressure on the cost of living increases as fuel bills soar. Workers have staged strikes in sectors from health care to aviation to demand that wages keep pace with inflation. In most cases, they were forced to accept less than what they asked for

Concerns about the cost of living dominate the policies of rich countries, in some cases turning a blind eye to other priorities such as measures to combat climate change.

While the recent drop in gasoline prices has eased some of the pressure, inflation remains a focus of US President Joe Biden’s administration. And his French counterpart, Emmanuel Macron, and German Olaf Scholz, are expanding their budgets to direct billions of euros to support programs.

But if things are tough in industrialized economies, soaring food prices exacerbate poverty and suffering in poor countries, from Haiti to Sudan and Lebanon to Sri Lanka.

The World Food Program estimates that 70 million more worldwide have been on the brink of starvation since the start of the Ukraine war, in what it calls a “hunger tsunami.”

What does that mean for 2023?

Central banks around the world are raising interest rates sharply to calm demand and tame inflation. By the end of 2023, the International Monetary Fund expects global inflation to fall to 4.7 percent, just under half its current level.

The goal is a “soft landing” in the business cycle in which prices decline without a housing market collapse, corporate bankruptcies, or high unemployment. However, such a better scenario proved elusive in previous confrontations with high inflation rates

From Federal Reserve Chairman Jerome Powell to Christine Lagarde, President of the European Central Bank, there is growing talk that the medicine of raising interest rates may be bitter. Moreover, the risks surrounding matters of great uncertainty, such as the Ukraine war and the tension between China and the West, tend to make things go in a downward trend.

For evidence, the International Monetary Fund’s cyclical outlook in October was among the bleakest in years. In short, the worst is yet to come, and in 2023, many will feel stagnant.