Four of the world’s leading central bankers have warned that supply bottlenecks are likely to last longer than expected, saying they are waiting for more unrealized signs that they are causing a self-fulfilling cycle of higher expected inflation and wage increases.
Jay Powell, chairman of the US Federal Reserve, said it was ‘frustrating’ that supply chain bottlenecks were holding back the recovery of the world’s largest economy and helped fuel rising price pressures as it intensified.
“The combination of strong demand for goods and the bottlenecks has led to inflation well above target,” Powell said in a panel with European Central Bank President Christine Lagarde and Andrew Bailey, governor of the European Central Bank. Bank of England and Haruhiko Kuroda, Governor of the Bank of Japan. . “We expect it to continue in the coming months before it moderates as the bottlenecks are eased.”
His warnings reflect similar remarks from Lagarde, Bailey and Kuroda, highlighting the uncertainties that still cloud the economic outlook due to supply-side disruption and the more contagious Delta variant.
Lagarde said supply bottlenecks appear to be accelerating in some areas, such as cargo containers and semiconductors. She added: ‘How long will these bottlenecks take to disappear is a question that we monitor very closely, and that is on our radar screen.
The British shortage of fuel, which has caused some people to be unable to fill their cars with petrol, is showing signs of relief, Bailey said, adding that ending Britain’s timetable this week could help the labor market shortage. But he said economic output in the UK could only return to a pre-pandemic level early next year – “a few months later” than expected.
As the world economy recovered from the impact of the coronavirus pandemic, inflation rose faster than many central bankers expected, driven by rising energy prices, rising demand, delays in the delivery of goods and shortages of materials and products.
‘What people do not see coming is the restrictions on the supply side. . . it was a surprise, ”says Powell. “It is not that our inflation models are wrong, although they are certainly not perfect, but that the scope and persistence of the constraints on the supply side have been missed.”
Central banks have said that many of the factors behind the acceleration in price growth are temporary and are expected to disappear next year. But some economists question whether some of these inflationary pressures could last longer than expected.
Kuroda said Japanese manufacturers were struggling to keep up with rising demand, especially for technological products, and that there was no sign soon that this weakening would occur. “Demand is increasing so fast that supply cannot fully follow the rapidly increasing demand,” he said. “It will probably be extended somewhat.”
Several Western central banks, including the Fed and the Bank of England, recently indicated that it would adopt a tighter monetary policy in response to stronger growth and higher inflation. Norway’s central bank raised interest rates last week, along with similar movements in Pakistan, Hungary, Paraguay and Brazil.
Powell confirmed on Wednesday that the Fed is ready to act if inflation is ‘more significant’ than forecast, reiterating that the central bank is ‘close’ to start scaling down its $ 120 billion asset-buying program. “I think we are moving carefully to the normalization process,” he added.
Lagarde said the eurozone economy was “back from the edge, but not completely out of the woods”, as she reiterated her view that there were no signs of supply chain disruptions, which “second-round effects” ‘can cause, such as significantly higher wage requirements.