BIS Chief: "Global Economy at a Critical Turning Point"
"Tariff Uncertainty Complicates Central Bank Responses"
The Bank for International Settlements (BIS) has issued a warning that households around the world expect inflation to rise by as much as 8% over the next year. With the trauma of rapid price increases following the COVID-19 pandemic and the war in Ukraine still lingering, and with the addition of President Donald Trump's tariff policies, concerns are mounting that the threat of inflation and global economic uncertainty are both on the rise.
On the 29th (local time), the BIS announced that households in 29 advanced and emerging market countries expect inflation to average about 8% over the next year, far exceeding the current average inflation rate of 2.4%.
Expected inflation tends to be higher than actual inflation. However, such expectations can fuel excess demand and increase pressure for wage hikes, making it likely that they will lead to actual price increases.
Shin Hyun Song, Head of Research at the BIS, stated, "Households are heavily influenced by their recent experiences with inflation," adding, "When it comes to expected inflation, once bitten, twice shy."
Following the pandemic, government liquidity expansion in various countries and soaring energy prices due to the war in Ukraine pushed inflation higher. Central banks, including the United States, managed to cool inflation through rapid interest rate hikes. However, since President Trump took office earlier this year and triggered a tariff war, inflation risks have been mounting again. In particular, with the 90-day mutual tariff suspension period announced by the U.S. government in April set to expire on the 8th of next month, tensions are rising over whether the tariff suspension will be extended.
Agustin Carstens, General Manager of the BIS, said that if there are signs of "de-anchoring"?where expected inflation drifts outside the central bank's target range and becomes uncontrollable?central banks must respond swiftly and forcefully to inflation shocks. He added, "Uncertainty surrounding the timing, scale, and future trajectory of tariffs makes such responses even more complex."
He also warned that changes in U.S. policies, including trade policy, are amplifying uncertainty and that the global economy is at a pivotal moment.
He said, "Due to various policy changes, including U.S.-led trade policy, the long-standing order of the global economy is collapsing, and the world is entering a new era of uncertainty and unpredictability," adding, "Public trust in policy institutions, including central banks, is being put to the test."
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