IMF: Inflation Rates in Several Countries Are on a Positive Track, But Don’t Be Careless!

International Monetary Fund (IMF)

The inflation rate has shown positive signs after leaving its peak in various countries. However, the International Monetary Fund (IMF) warned that this decline still needs to be monitored.

The IMF stated that world economic growth will still be overshadowed by uncertainty this year.

The decline in inflation in various countries was also supported by central bank monetary policy which was getting tighter by raising interest rates.

Pierre-Olivier Gourinchas, Chief Economist and Research Director of the IMF, Tuesday (31/1/2023), stated that the issue of inflation has finally brought good news even though the battle against it has not ended.

He also gave a message to central banks that they should continue to maintain their tight monetary policy until core inflation is truly on a downward path.

Easing monetary rules and policy too early could destroy the gains made so far. This is because inflation will still be high.

Policy synchronization must be carried out considering that several countries have not yet escaped the peak of inflation.

On the other hand, this monetary tightening triggered capital outflows that made exchange rates in developing countries (emerging markets) fluctuate.

Gourinchas believes that developing countries must allow their exchange rates to adapt to the conditions of tightening global monetary policy.

The adaptation that can be done is to use foreign exchange reserves and capital flow management to soften the vulnerability to excessive volatility.

Furthermore, the IMF also projects economic growth of 2.9% in 2023, higher than their last outlook or projection in October 2022 which estimated global economic growth of only 2.7%.

“The IMF projects that global economic growth will reach 3.4% in 2022 and slow down to 2.9% in 2023. Then increase to 3.1% in 2024,” explained Gourinchas.

Therefore, the IMF likened that the prospects for global economic growth this year would not be as gloomy as previously estimated.