The International Monetary Fund (IMF) recently released information detailing the risks of global inflation.
The analysis, titled "Inflation Scares in an Uncharted Recovery," details the expectations for global inflation moving forward and what risks may affect projections that inflation should return to pre-pandemic levels by 2022.
"Policymakers must walk a fine line between patient support for the recovery and being ready to act quickly," according to IMF.
While the IMF expects inflation to level off by the middle of 2022, there are still significant risks that could destabilize this recovery.
"Sharply rising housing prices and prolonged input supply shortages in both advanced economies and emerging market and developing economies and continued food price pressures and currency depreciations in the latter group could keep inflation elevated for longer," the IMF states in its report, which is the second chapter of the World Economic Outlook called "Inflation Scares."
The baseline expectation for advanced economies is that inflation peaks at around 3.6% during the fall months of 2021 and eventually subsides to around 2% mid-2022. Emerging economies see nearly double the inflation at both instances.
The IMF also highlighted government spending, among other factors, that could un-anchor expectations and "spark a self-fulfilling upward spiral for prices."
"Longer-term government spending commitments and external shocks could also contribute to expectations becoming de-anchored, especially in economies with central banks that aren’t believed to be able or willing to contain inflation," according to IMF.
The IMF did try to provide some reassurance regarding inflation for more advanced countries, stating the following at the beginning of the risks section of the chapter.
"Inflation expectations have stayed relatively anchored so far, and risks of de-anchoring appear limited for advanced economies despite frequent monetary and fiscal policy announcements during the pandemic."