Last Leg Of Inflation Fight Will Be Hardest, Says Central Banks' Umbrella Body: 'Rates May Need To Stay Higher For Longer'

Zinger Key Points
  • Advances made so far in bringing down inflation could be attributed to easing of supply chains and fall in commodity prices, it said.
  • BIS highlighted that labor market continues to remain tight while it has proved difficult to rein-in services inflation.
  • It suggested that governments should tighten their budgets, while targeting support on the most vulnerable.

The Bank for International Settlements (BIS), an international financial institution owned by member central banks, has cautioned that despite inflation subsiding in many regions, central banks still have significant work ahead of them.

In a statement, the BIS noted, “Despite the most intensive monetary policy tightening in recent memory, the final stage of achieving price stability will be the most challenging.” 

The institution highlighted that progress in reducing price hikes has been attributed to supply chain improvements and declining commodity prices. However, the labor market remains tight, and reining in services inflation has proven difficult.

“There is a material risk that an inflation psychology will take hold, where wage and price increases start to reinforce each other. Interest rates may need to stay higher for longer than the public and investors expect,” it said.

Also Read: How To Invest In Startups

Extended Hikes: The BIS report coincides with two significant developments in central banking. The Bank of England surprised the market by raising rates by 50 basis points to address persistent and higher-than-expected inflation. Meanwhile, Federal Reserve Chair Jerome Powell has indicated the possibility of another 50 basis points rate hike this year.

To address these challenges, the BIS proposed that governments tighten their budgets, focusing support on the most vulnerable while implementing long-term spending consolidation. This approach would help control inflation, mitigate financial stability risks, and reduce the need for prolonged higher interest rates, according to the institution.

Agustín Carstens, the general manager of the BIS, emphasized that fully taming inflation remains the key policy challenge. He acknowledged that the last mile of the journey is typically the most difficult but stressed the importance of acting promptly.

Carstens stated, “The burden is falling on many shoulders, but the risks from not acting promptly will be greater in the long term. Central banks are committed to staying the course to restore price stability and protect people’s purchasing power.”

Read Next: Gold Edges Up On Russia’s Internal Chaos, Soft Dollar: What’s Capping More Gains?

Market News and Data brought to you by Benzinga APIs
Comments
Loading...
Posted In: NewsTop StoriesEconomicsBank for International SettlementsBISFederal ReserveInflation
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!