Inflation fell significantly in many economies but may rise: IMF chief

By Ovunc Kutlu

ISTANBUL (AA) - International Monetary Fund (IMF) Managing Director Kristalina Georgieva said Friday inflation has declined significantly in many economies, but it could still increase in some cases.

"Inflation has declined significantly, to or near target in many economies," Georgieva told at 2024 Michel Camdessus Central Banking Lecture in Washington, D.C.

"It is the result of resolute actions of central banks, as well as fading supply shocks," she added. "The forces of monetary policy transmission have re-asserted themselves in the end."

"We are in a better place, but we can’t be complacent," said Georgieva, adding services inflation is persistent in many countries, and inflation "could yet tip upwards."

Georgieva central banks around the world must ensure that inflation sustainably returns to their target and remain there, while avoiding the risk of excessively tight policies.

"This is particularly important in a world faced with a low growth/high debt conundrum," she added.

The IMF chief said economies are the world have entered the "last mile" in the fight against inflation, as most central banks are beginning a monetary easing cycle.

Although economic activity in the world has been weaker than desired, it has been "remarkably resilient," she said, noting the IMF expects global growth to be more than 3% in 2024 and 2025.

"While inflation is retreating, rates are going down and recession appears unlikely, challenges will abound," she said.

"We are living in a more shock-prone world, a world in which geopolitical considerations turn into geo-economic fragmentation, and a world of tremendous structural shifts due to the green and digital transformation," she added.

Georgieva urged central banks to be vigilant against the potential for shocks that can unleash powerful inflationary forces and create difficult tradeoffs.

Central banks, in addition, must grapple with ongoing structural changes in the financial sector and the broader economy, she advised.

"We must manage the gains and the disruptions of AI, which could provide a major impetus to productivity growth but also increase inequality if not accompanied by supportive policies," she said.

"And we need to monitor how further advances in digitalization transform the financial landscape. Digital assets, including central bank digital currencies, stand out as potential game changers," she added.