2021-09-29 21:23:42 The world’s top central bankers see supply chain problems prolonging inflation.

The world’s top central bankers see supply chain problems prolonging inflation.

The world’s top central bankers acknowledged that inflation, which has risen in many advanced economies this year, could remain elevated for some time — and that, while they still expect it to fall as pandemic-related supply disruptions subside, they are keeping a close eye to ensure that hot price pressures do not become more permanent.

Jerome H. Powell, chairman of the Federal Reserve, spoke on a panel with Christine Lagarde, president of the European Central Bank, Andrew Bailey, governor of the Bank of England, and Haruhiko Kuroda, president of the Bank of Japan, on Wednesday.

Mr. Powell noted that, while demand in the United States was strong, factory shutdowns and shipping issues were stifling supply, weighing on the economy and pushing inflation above the Fed’s target of 2% on average.

“It is frustrating to acknowledge that, 18 months later, getting people vaccinated and Delta under control remains the most important economic policy that we have,” Mr. Powell said. “It is also discouraging to see that bottlenecks and supply chain issues are not improving — in fact, they appear to be getting worse at the margin.”

“We see that continuing into next year, probably, and holding inflation up for a longer period of time than we had anticipated,” Mr. Powell said.

The Fed chair’s remarks echoed those of Mr. Bailey and Ms. Lagarde, both of whom cited uncertainty about persistent supply-chain bottlenecks as a risk.

“We’re back from the brink, but we’re not out of the woods yet,” Ms. Lagarde said of the economic recovery. “There is still uncertainty.”

She stated that supply-chain disruptions were accelerating in some sectors, and that energy price increases, as well as potential new waves of the coronavirus pandemic that could be vaccine-resistant, were to be monitored.

Mr. Bailey stated that “monetary policy cannot solve supply-side shocks.” “What we must do is concentrate on the potential second-round effects of these shortages.”

The European Central Bank sponsored the appearance of some of the world’s most powerful economic officials during a volatile week in financial markets. Stocks were recovering on Wednesday morning after falling sharply on Tuesday as government bond yields rose. Investors have been shaken by a political standoff in the United States over the debt ceiling, problems in China’s heavily indebted property sector, the reality that global central banks are preparing to reduce economic support, and the possibility that recent rapid price gains will last.

This year’s inflationary wave has swept through Europe and the United States as consumer demand surges, but factory shutdowns and shipping snarls keep many goods in short supply. Central bankers have consistently claimed that price increases are only temporary. They predict that as businesses adjust to the post-pandemic recovery, supply-chain kinks will emerge. And, while consumers have been spending down savings accumulated during the pandemic and bolstered by government stimulus, these will not last indefinitely.

However, economic officials are increasingly admitting that, while they expect the inflationary surge to be temporary, it may last longer than they anticipated.

In the United States, consumer price inflation was 5.3 percent in August, while the Fed’s preferred inflation gauge, the personal consumption expenditures, or P.C.E., index, rose 4.2 percent year to July. The August P.C.E. data will be released on Friday.

Consumer prices in the United Kingdom are expected to peak “slightly above” 4 percent later this year, more than doubling the central bank’s target.

Inflation is also high in other parts of Europe, though the increase has not been as dramatic. Inflation in the eurozone reached 3% in August, the highest level in nearly a decade. However, price increases in China are expected to slow more significantly than in the United Kingdom and the United States in the coming years.

Japan is a notable outlier among developed economies, with slowing demand and near-zero inflation. Weak inflation limits central banks’ ability to assist the economy in times of trouble and can fuel a cycle of economic stagnation, making it a problem.

Central bankers in continental Europe, the United Kingdom, and the United States have been debating how to respond to the price increase. If they overreact to inflation that is temporarily elevated by factors that will soon fade, they may unnecessarily slow labor market recoveries — and may even doom themselves to a future of too-low inflation, similar to Japan’s situation.

However, if shoppers come to expect consistent inflation in the aftermath of today’s burst, they may demand higher wages, fueling an upward price cycle as businesses try to cover rising labor costs.

Monetary policymakers want to avoid a situation that would force them to raise interest rates sharply, causing a severe economic slowdown that would stifle demand and tame prices.

“There is a conflict between our two goals: maximum employment and price stability,” Mr. Powell said. “Inflation is high, well above target, and yet there appears to be labor market slack.”

“Managing that process over the next couple of years, I believe, is the highest and most important priority, and it will be very difficult,” he added.

For the time being, most top global officials are preaching patience while gradually shifting their policies away from full-throttle economic support. Even as its policy rate remains near zero, the Fed is preparing a plan to slow its large-scale bond purchases, which can keep money flowing through the financial system and lower many types of borrowing costs. The Bank of England has indicated that policy must be tightened soon, and the European Central Bank is slowing its own pandemic-era purchase program.

“The historical record is replete with examples of underdoing it,” Mr. Powell said, noting that economic policymakers have a tendency to underestimate economic damage and under-support recovery efforts. “I believe we avoided that this time.”

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The world’s top central bankers see supply chain problems prolonging inflation.