Governments must not allow inflation to become ‘runaway train’ – IMF chief

The managing director of the International Monetary Fund has urged governments to keep up the fight against inflation even it means more pain at a time of extraordinary economic turmoil.

Speaking to reporters on Thursday, the IMF’s Kristaline Georgieva said that the world economy “has been hit by one shock after another″ – the coronavirus pandemic, Russia’s invasion of Ukraine and a resurgence of inflation.

But she said reining in rising prices should take priority.

“If we do not restore price stability, we will undermine prospects for growth,” she said, adding: “We cannot possibly allow inflation to become a runaway train — bad for growth, bad for people, bad especially for poor people.″

The Federal Reserve and other central banks have been raising interest rates to tame inflation. On Thursday, the US reported that inflation accelerated in September, with the cost of housing and other necessities intensifying pressure on Americans. Consumer prices rose 8.2% compared with September of last year.

Ms Georgieva acknowledged that the higher borrowing costs would pinch economic growth but she urged policymakers to show restraint in spending money to ease the pain.

“When monetary policy puts a foot on the brakes fiscal policy should not step on the accelerator,″ she said.

Governments, many of them already heavily indebted after battling the pandemic, should focus on helping the most vulnerable at a time of food shortages and punishingly high energy costs, not on broader spending programmes. “Policy measures need to be well targeted, and they need to be temporary,” she said.

Ms Georgieva’s call for inflation vigilance comes at a time when some economists worry that central banks will overdo interest rate hikes and cause unnecessary economic pain.

She also warned that the “fragmentation” of the world economy into competing political blocs could cause inflation to linger.

If geopolitical tensions cause companies to move their supply chains — out of China, for instance — production could become less efficient and more expensive and central bank rate hikes could not do much about it.

“If we lose the benefits of a more-integrated global economy, we all would be poorer,″ she said.

Ms Georgieva made the comments as the world’s financial leaders gathered in Washington for the autumn meetings of the IMF and World Bank.