Following a meeting on Thursday, the International Monetary and Financial Committee (IMFC), which consists of 24 finance ministers and central bank governors, agreed that countries should “carefully calibrate” their domestic policies to the evolving pandemic and available policy space.
“We will continue to prioritise health spending and protecting the most vulnerable, while shifting focus, as appropriate, from crisis response to promoting growth and preserving long-term fiscal sustainability, including, where applicable, by bolstering medium-term fiscal frameworks,” the IMFC said in a statement.
It assured that central banks are “monitoring pricing dynamics closely” and that they “can look through inflation pressures that are transitory”.
“They will act appropriately if risks of inflation expectations de-anchoring become concrete,” the IMFC said.
But despite assurances, talk of stagflation is on the rise.
Just last week, global investment manager VanEck warned that a stagflation scenario could be on the cards, following widespread complacency around inflation.
“Because of the Fed’s dovishness, growth has continued its dominance over value. But we are seeing that situation reverse,” VanEck Asia-Pacific CEO Arian Neiron said.
Oxford Economics, however, outrightly dismissed the stagflation scenario, noting in a recent report that fears of both runaway inflation and stagflation are misguided.
“With demand cooling and supply gradually rebounding, we expect inflation to cool in the coming quarters,” Oxford Economics predicted.
While debate is brewing, data released on Thursday revealed a further 0.4 per cent lift in the US consumer price index in September, pushing annual inflation up to 5.4 per cent – its largest gain since 2008. These figures are sure to spark further speculation about the Fed’s rate plans.
