In a speech, ECB Chief Economist Philip Lane said that monetary is “always decided under conditions on uncertainty”, both about “inflation dynamics” and the “channels connecting medium-term inflation to our monetary policy instruments”. This uncertainty is “mitigated to some extent by taking a meeting-by-meeting”.
The “considerable lags” between monetary policy actions and their impact on inflation outcomes imply that much of the near-term attention in assessing monetary policy actions focuses on the transmission to financial conditions.
Also, “in the absence of further shocks, the profile of euro area inflation over the next 12 to 18 months will be primarily driven by the fading impact of past supply shocks and the deceleration in demand that is signalled by the latest confidence indicators.” The role of monetary policy is to ensure that the “residual” inflation dynamic returns to target in a timely manner.
IMF global growth at 3.2% in 2022, 2.7% in 2023
In the latest World Economic Outlook Report, IMF keeps global economic growth forecasts unchanged at 3.2% in 2022, but downgrade 2023 by -0.2% to 2.7%.
It said: “Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook.”
Global inflation is forecast to rise from 4.7% in 2021, to 8.8% in 2022, but to decline to 6.5% in 2023, and then 4.1% in 2024.
IMF said, “Monetary policy should stay the course to restore price stability, and fiscal policy should aim to alleviate the cost-of-living pressures while maintaining a sufficiently tight stance aligned with monetary policy. ”
Full report here.