Inflation is wreaking havoc on everything from grocery bills to monthly mortgage payments. Canada’s sky-high inflation rate has become impossible to ignore. So have its potential ramifications. from the International Monetary Fund highlights the dramatic extent to which inflation is impacting monetary policy — and the potential urgency for more forceful tightening.
, which suggested a real neutral rate of around 0.5%, and that policymakers saw a 1.7% output expansion both this year and next — a figure that’s “very close” to estimates of potential.“The real rate forward curve in the euro area, proxied by German bunds, has also shifted up, though remains deeply negative,” reads the blog post. “That’s consistent with real rates converging only gradually to neutral.
Even so, inflation risks appear strongly tilted to the upside, say the authors. As such, there remains a “substantial risk that high inflation becomes entrenched, and inflation expectations de-anchor.” Persistently high inflation will come as no surprise to many. For the United States and Germany, household surveys show that people expect high inflation over the next year, highlights the post. “The costs of bringing down inflation may prove to be markedly higher if upside risks materialize and high inflation becomes entrenched,” they write.