Most Central Banks are Ignoring Rising Inflation Pressure

(21 June 2021) Fast post-COVID recovery of consumer demand amid supply chain disruptions has resulted in rising inflation in most countries around the world. In many economies, consumer price inflation (CPI) has already exceeded monetary policy targets, but so far central banks are mostly ignoring the rising inflation on the grounds that the acceleration is caused by temporary factors. The reluctance of monetary authorities to combat rising inflation pressure raises a question of whether the world economy may end up with uncontrollably high inflation by the end of the year.

• By the middle of June 2021, 36 countries (out of 38 countries whose monetary policy rates are tracked by Bank for International Settlements) have seen accelerated consumer price inflation compared to the end of 2020. And in 15 economies (including the United States), consumer price inflation has already increased above the monetary policy inflation targets.
• Only three central banks (Turkey, Russia and Brazil) increased their policy rates between the end of 2020 and mid-June 2021 in an effort to cool down inflation. The Bank of Denmark also increased its policy rate by 0.1 percentage points, to -0.5%, but since this rate remains in the negative zone, the increase can hardly be considered a tightening of monetary policy.

Note: Monetary policy rate is the rate that is used by central bank to implement or signal its monetary policy stance. It is most commonly set by the central banks policymaking committees (IMF). Monetary policy targets of CPI inflation shown below include upper limit of deviation from target where applicable.