IMF expects inflation to return to pre-pandemic levels next year

The International Monetary Fund (IMF) said it expects inflation to return to pre-pandemic levels next year, but warned that persistent supply disruptions risked unanchoring inflation expectations,.

However, persistent supply chain disruptions and pricing pressures are constraining the global economy’s recovery from the Covid-19 pandemic, the IMF said yesterday as it cut growth outlooks for the United States and other major industrial powers.

In its World Economic Outlook, the IMF trimmed its 2021 global growth forecast to 5.9 per cent from the six per cent forecast it made in July. It left a 2022 global growth forecast unchanged at 4.9 per cent.

“This modest headline revision, however, masks large downgrades for some countries,” the IMF said in the report. “The outlook for the low-income developing country group has darkened considerably due to worsening pandemic dynamics. The downgrade also reflects more difficult near-term prospects for the advanced economy group, in part due to supply disruptions.”

Global manufacturing activity has been slammed by shortages of key components such as semiconductors, clogged ports and a lack of cargo containers, and a labour crunch as global supply chains optimised for efficiency have struggled to return to normal after pandemic-induced shutdowns.

Demand-supply mismatches, fueled in part by excess savings built up in wealthy countries, have driven up prices, causing spikes in inflation.

The US is taking the brunt of these effects, and the IMF slashed its 2021 US growth forecast by a full percentage point, to six per cent, from seven per cent in July – a level that was seen as the strongest pace since 1984.

US growth could shrink further, the IMF said, because its forecasts assume that a deeply divided US Congress will approve President Joe Biden’s spending worth $4 trillion (Sh450 trillion).