{"id":32794,"date":"2025-06-29T09:14:52","date_gmt":"2025-06-29T09:14:52","guid":{"rendered":"https:\/\/financialrush.com\/?p=32794"},"modified":"2025-06-29T09:14:52","modified_gmt":"2025-06-29T09:14:52","slug":"central-banks-warned-to-stay-on-inflation-alert","status":"publish","type":"post","link":"https:\/\/financialrush.com\/?p=32794","title":{"rendered":"Central banks warned to stay on inflation alert"},"content":{"rendered":"<p> \n<\/p>\n<div>\n<p>Stay informed with free updates<\/p>\n<p class=\"article__content-sign-up-topic-description o3-type-body-base\"><span>Simply sign up to the <!-- -->Global inflation<!-- --> myFT Digest &#8212; delivered directly to your inbox.<\/span><\/p>\n<p><iframe class=\"article__content-sign-up-iframe close\" scrolling=\"no\" id=\"signUpIframe\" data-prev-url=\"\/register\/in-article-sign-up?ft-content-uuid=9a430040-59f9-4b3e-8baf-e0de38596171&amp;concept-id=573cc1d3-b359-4548-a69a-4aa0b3818c1b\"><\/iframe><\/div>\n<div id=\"article-body\">\n<p>Central bankers have sounded the alarm over the threat of fresh outbreaks of inflation, warning of the effect of deep \u201cscars\u201d on households from the post-pandemic price upsurge.\u00a0<\/p>\n<p>The <a href=\"https:\/\/www.ft.com\/stream\/25f8f4c7-15db-4360-81cf-61404f785720\" data-trackable=\"link\">Bank for International Settlements<\/a> found that households in 29 advanced and emerging market economies expected inflation over the next 12 months to be about 8 per cent, far higher than the current 2.4 per cent average inflation level.\u00a0<\/p>\n<p>This raises the threat that price expectations become \u201cunmoored\u201d from central banks\u2019 official inflation targets, with households and groups responding precipitously to future jumps in prices by demanding higher wages and jacking up prices in a self-reinforcing spiral.\u00a0<\/p>\n<p>\u201cHouseholds are very much influenced by the recent <a href=\"https:\/\/www.ft.com\/global-inflation\" data-trackable=\"link\">inflation<\/a> experience; when it comes to inflation expectations, it\u2019s once bitten, twice shy,\u201d said Hyun Song Shin, head of the Monetary and Economic Department at the BIS.\u00a0\u00a0<\/p>\n<p>\u201cIt is well-known that surveys of households\u2019 inflation expectations tend to overestimate real inflation. But if those perceptions then translate into actions and their behaviour, that\u2019s going to impact the economy.\u201d\u00a0<\/p>\n<p>Central banks around the world have been trimming interest rates as the worst price surge in a generation subsides. Inflation in advanced economies is set to drop to 2.2 per cent next year, far below the high of more than 7 per cent in 2022, according to IMF forecasts. In emerging economies inflation will drop to 4.6 per cent compared with just under 10 per cent that year.\u00a0<\/p>\n<p>But officials remain on edge given the lasting legacy of the inflationary upsurge after the end of the Covid-19 restrictions, which was exacerbated in many economies by energy price jumps that followed the Russian full-scale invasion of Ukraine as well as gains in other commodity values.\u00a0<\/p>\n<p>President Donald Trump\u2019s trade war has added a new threat, especially in the US, where the Federal Reserve has kept policy on hold this year given the possibility that increases in tariffs to the highest levels in decades drive up consumer prices.\u00a0<\/p>\n<p>The Basel-based BIS, which advises the world\u2019s central banks, argued that while temporary jumps in inflation were often viewed as being \u201crelatively benign\u201d, there was a risk they would lead to persistent increases in inflation fed by upward shifts in expectations.<\/p>\n<p>It found in its annual report that additional forces, such as population ageing, climate change, geopolitical tensions and a less elastic supply side, could all contribute to a more volatile environment, making policymaking more fraught for central bankers.\u00a0<\/p>\n<p>\u201cHouseholds, in particular, may show less tolerance for price increases and real wage declines following the sharp rise in living costs after the pandemic,\u201d warned Agust\u00edn Carstens, general manager of the BIS.\u00a0<\/p>\n<p>\u201cIf evidence of de-anchoring emerges, central banks must respond quickly and forcefully to inflationary shocks. The uncertainty surrounding the timing, magnitude and future trajectory of tariffs further complicates this task.\u201d<\/p>\n<p>Fed chair Jay Powell has highlighted the risk that people\u2019s memories of post-Covid inflation could complicate the US central bank\u2019s efforts to stamp out price pressures.\u00a0<\/p>\n<p>Powell said on Wednesday that US rate-setters had been more sure that tariffs would prove a one-off shock back in Trump\u2019s first term.\u00a0<\/p>\n<p>This time around a one-time shock remained \u201cthe base case\u201d, the Fed chair told the Senate banking committee. But he added that given the legacy of the global inflation increase, the threat of a more prolonged bout of tariff-induced price pressures was \u201csomething you want to approach carefully in a world where inflation is not back to 2 per cent\u201d.\u00a0<\/p>\n<aside aria-labelledby=\"aside-label\" class=\"n-content-recommended--single-story n-content-recommended--inset\" data-component=\"recommended\">\n<p class=\"n-content-recommended__title o3-type-body-highlight\">Recommended<\/p>\n<div class=\"o-teaser o-teaser--article o-teaser--small o-teaser--stacked o-teaser--has-image o-teaser--opinion js-teaser\" data-id=\"ff42f371-838b-47b1-9b92-806ff49c4e2e\">\n<div class=\"o-teaser__image-container js-teaser-image-container\"><a href=\"https:\/\/www.ft.com\/content\/ff42f371-838b-47b1-9b92-806ff49c4e2e\" data-trackable=\"image-link\" data-trackable-context-story-link=\"image-link\" tabindex=\"-1\" aria-hidden=\"true\"><\/p>\n<div class=\"o-teaser__image-placeholder\" style=\"aspect-ratio:2048\/1152\"><\/div>\n<p><\/a><\/div>\n<\/div>\n<\/aside>\n<p>Households\u2019 expectations of inflation <a href=\"https:\/\/www.ft.com\/content\/7637cdf1-8ad5-4f07-a562-51df8c2226e0\" data-trackable=\"link\">shot up <\/a>following Trump\u2019s unveiling of his \u201creciprocal\u201d tariffs on April 2, with the University of Michigan\u2019s closely watched polls of short-term and longer-term inflation expectations hitting highs last seen in the early 1990s.\u00a0<\/p>\n<p>They have since declined following the ratcheting down of trade tensions between the US and China, but they remain at levels that are more than double the Fed\u2019s 2 per cent goal. The Fed has stressed that market-based measures have continued to show that inflation expectations among US investors remain well anchored.\u00a0<\/p>\n<p>In its latest meeting earlier this month, the Bank of England also flagged risks surrounding \u201celevated\u201d household and business inflation expectations, with worries about an oil shock stemming from the Middle East conflict adding to the reasons to be alert.\u00a0<\/p>\n<\/div>\n\n<br \/><a href=\"https:\/\/www.ft.com\/content\/9a430040-59f9-4b3e-8baf-e0de38596171\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Stay informed with free updates Simply sign up to the Global inflation myFT Digest &#8212; delivered directly to&hellip;\n","protected":false},"author":6,"featured_media":32795,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23],"tags":[],"class_list":["post-32794","post","type-post","status-publish","format-standard","has-post-thumbnail","category-us","cs-entry","cs-video-wrap"],"_links":{"self":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts\/32794","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=32794"}],"version-history":[{"count":0,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts\/32794\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/media\/32795"}],"wp:attachment":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=32794"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=32794"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=32794"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}