Central bank warns about global supply disruptions

Keeping the inflation elevated longer, the supply constraints thwarting global economic growth could still get worse. The world’s top central bankers warned that this is even if the current spike in prices is still likely to remain temporary. During the pandemic, the disruptions to the global economy have upset supply chains across continents.

These disruptions have left the world short of a plethora of goods and services from car parts and microchips to container vessels that transport goods. Federal Reserve Chair Jerome Powell told a conference that it is frustrating to see the bottlenecks and supply chain problems not getting better. That is in fact at the margin apparently getting a little bit worse. Powell told the European Central Bank‘s Forum that they are continuing into next year probably and holding inflation up longer than they had thought.

ECB chief Christine Lagarde voiced similar concerns by arguing that the end of these bottlenecks, once thought by economists to be just weeks away, is uncertain. Lagarde said that the supply bottlenecks and the disruption of supply chains, which they have been experiencing for a few months seem to be continuing and, in some sectors, accelerating. She thinks that about shipping, cargo handling etc.,

Global inflation has spiked in recent months. Lagarde said that the ECB would be very attentive to these second-round effects. Bank of England Governor Andrew Bailey, had planned another speaker at the forum. He said that he would keep a very close watch on inflation expectations. Central banks are the main authority for controlling prices. They have no influence over short-term supply disruptions. And so, they are likely to be bystanders. They will wait for economic anomalies. Bailey said that monetary policy cannot solve supply side shocks. It cannot produce computer chips, wind, truck drivers etc., Policymakers called for heightened attention to inflation. They all maintained their view that the spike in inflation would be temporary.

Concerns about sticky inflation have fuelled a debate. This is for unwinding the crisis-era stimulus measures. The Fed, the BoE and the Bank of Canada have openly discussed policy tightening. In countries as South Korea, Norway and Hungary, they have already raised interest rates. The ECB and the Bank of Japan are the last movers. The ECB refuses to discuss tapering. This sort of patience was only reinforced by Lagarde and Bank of Japan Governor Haruhiko Kuroda.