Inflation forecast: Expert discusses rise
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Inflation continues to impact UK consumers, with the Consumer Prices Index (CPI) recently hitting 2.5 percent, higher than the Bank of England’s two percent target, sparking concern among savers. Rising cost of living issues are a global concern and the IMF has examined what actions central banks across the world may be forced to take.
In late-July, the IMF released its “Fault Lines Widen in the Global Recovery” report which examined the world’s economic prospects going forward.
Within this report, the following was detailed on inflation: “Recent price pressures for the most part reflect unusual pandemic-related developments and transitory supply-demand mismatches.
“Inflation is expected to return to its pre-pandemic ranges in most countries in 2022 once these disturbances work their way through prices, though uncertainty remains high.
“Elevated inflation is also expected in some emerging markets and developing economies, related in part to high food prices.
“Central banks should generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying price dynamics.
“Clear communication from central banks on the outlook for monetary policy will be key to shaping inflation expectations and safeguarding against premature tightening of financial conditions.
“There is, however, a risk that transitory pressures could become more persistent and central banks may need to take preemptive action.”
Christian Lanng, the CEO of accounting firm Tradeshift, analysed the report and warned more issues could emerge: “The IMF is right to identify supply-demand mismatches as a major cause of global inflation, but Governments and businesses should not count on these being ‘transitory’ as the IMF claims.
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“In truth, there may never be a return to ‘normal’, and international supply chains must adapt for a long period of volatility.
“Tradeshift’s quarterly research highlights the stop-start nature of recovery around the world.
“For example, in China – the first country to go through the pandemic – supply chain transactions recently dropped by 22 percent, the second quarter in a row that activity levels have fallen by a double-digit margin, largely the result of supply chain bottlenecks.
“Modern supply chains – including those based around ‘just-in-time’ – are designed for maximum cost-efficiency but they lack the agility to respond to profound and fast-changing situations like Covid or other global crises.
“This leaves businesses vulnerable not just to a slump but also to sudden or non-uniform economic recovery, as Tradeshift’s data illustrates.
“While everyone from the IMF to mom-and-pop stores hopes for a swift recovery, it’s clear that supply chains will have to change.
“Digital technology must play an increasingly central role, for example by unlocking faster, more predictable cash flow, better access for diverse suppliers and increased optionality in the event of disruption.”
Fortunately, Mr Lanng went on to highlight consumers may be able to actually stem inflation themselves going forward, so long as they are prepared to do a bit of homework.
Mr Lanng concluded: “Inflation has many causes and there is no single solution. But one of the key contributory factors to the rising price of everything from cabbages to cars is, ironically, the systems businesses have created in the last 30 years to reduce costs.
“There’s never been much that consumers can do about inflation. Yet that might be about to change. We are seeing the rise of more informed, more ethical shoppers, and that could help provide a solution.
“The same technological approach that ensures the provenance and sustainability of goods by tracking them through every stage of the supply chain also brings the agility and optionality that enables businesses to respond quickly to crises – by quickly onboarding new suppliers, for example. As consumer pressure on ethical and sustainability issues increases, it will help push businesses to explore the shortcomings of their existing supply chain arrangements.
“Every consumer wants lower prices, right up to the point when they can’t get the goods at all. With luck, businesses will learn from this and invest in technologies that enable them to build resilience, redundancy and agility into their global supply chains, so we don’t have to face shortages and skyrocketing prices the next time we face a crisis.”
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