According to central bankers, global supply disruptions could continue to be worse, and banker executives warn

According to central bankers, global supply disruptions could continue to be worse, and banker execu ...

FRANKFURT, Sept 29, Supply constraints that hinder global economic growth could still get worse, keeping inflation elevated longer, even if the current rise in prices is still likely to remain temporary, the world's top central bankers warned on Wednesday.

The global economy's troubles during the epidemic have irritated supply chains across continents, leaving the world short of a plethora of goods and services, ranging from automobile parts and microchips to container vessels that transport goods across the seas.

"It's... irritating to see the bottlenecks and supply chain problems not getting better, in fact a little bit worse," Federal Reserve Chair Jerome Powell said at octaneous meetings.

"We believe this is continuing until next year, and inflation may be going up longer than we had anticipated," Powell told the European Central Bank's Forum on Central Banking.

ECB chief Christine Lagarde expressed similar concerns in a statement with Powell, claiming that the end of these bottlenecks, once considered by economists to be just weeks away, is uncertain.

"The supply bottlenecks and disruption of supply chains, which we've been experiencing for a few months... appear to be continuing and in certain sectors accelerating," Lagarde stated. "I'm thinking about shipping, cargo handling, and anything like that here."


Global inflation has risen in recent months as energy prices rise, and production bottlenecks are pushing prices even higher, raising fears that the runup, if it lasts long enough, could sink into expectations and increase inflation's overall profile.

Indeed, Lagarde stated that the ECB would be "very attentive" to these second-round consequences, whereas Bank of England Governor Andrew Bailey, another speaker at the forum, stated he would "extremely vigilant" on inflation expectations.

"Will it start changing the way people think about inflation if this period of higher inflation, even though it is extremely likely to be temporary, assuming it lasts long enough, will it begin affecting, changing how people view inflation? We monitor this very carefully," Powell added.

The problem is that central banks, the major authority for controlling prices, have no influence on short-term supply disruptions, thus they are likely to be bystanders, waiting for economic anomalies to self-correct without lasting harm.

"Monetary policy can't solve supply side shocks. "It's not possible to produce computer chips, it'll not produce wind, and it will not require truck drivers," Bailey explained.

Despite this, even as policymakers demanded increased attention to inflation, all maintained their long-standing view that inflation's spike would be temporary, and price rises would moderate next year, moving back to or below central bank targets.

Concerns about "sticky" inflation have fuelled a debate about the need to unwind crisis-era stimulus measures, and comments from Wednesday's panel reinforced expectations that the world'' s largest central banks will move on considerably different schedules, leaving them out of sync for years to come.

The Fed, the BoE, and the Bank of Canada have openly discussed policy tightening, whereas central banks in such countries as South Korea, Norway, or Hungary have already raised interest rates, beginning a long journey to policy normalisation.

Meanwhile, the ECB and the Bank of Japan are likely to be the last movers, taking extreme caution after setting their inflation targets for years.

The ECB even refuses to discuss tapering and has already demonstrated its readiness for overshooting its inflation target, since it prefers too late than too early.

This kind of patience was only strengthened by Lagarde and Bank of Japan's Governor Haruhiko Kuroda, even as both provided a relatively optimistic outlook on growth, arguing that their economies may be back at their pre- pandemic levels in the coming months.

Hugh Lawson, Editing by Leika Kihara, Howard Schneider, Dan Burns, David Milliken, and Andy Bruce; Edited by Hug H Lawsons

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