Persistent inflation means central banks across the world will be forced to keep interest rates high for years to come as they battle pay demands, warfare and trade disputes, the Bank for International Settlements (BIS) has said.
Inflation is falling “but the job is not done yet”, warned the institution, often known as the central bank for central bankers.
Price rises in services are proving “stubborn” across much of the world, even as goods inflation has come down following the supply chain chaos of the pandemic and the energy price shock which accompanied Russia’s invasion of Ukraine.
The BIS warned that if price pressures in the services industry persisted, central banks would be forced to keep monetary policy tighter in order to meet inflation targets.
There is also a longer-term threat from disruption to trade routes and the end of the wave of globalisation which helped hold down costs in the early years of this century, the organisation added.
It said: “Climate change could create upward pressures on goods prices through more severe disruptive weather events or drought-induced restrictions on freight shipping in waterways.
“Geopolitical tensions could add to these pressures, including through a reorganisation of global value chains. This means that, all else equal, services price growth may have to be much lower than it was in the decades that preceded the pandemic if inflation targets are to be achieved.”
