Is the IMF Starting to Worry about Inflation?

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The International Monetary Fund (IMF) has an updated forecast on inflation. Not surprisingly, their October 2021 forecast claims that there is only a 10 percent probability of inflation remaining above 3.4 percent by the end of 2021. Although they are sticking to the transitory inflation narrative, it certainly looks like inflation is on their radar — and a bigger concern than they want to admit. (Emphasis mine)

Density forecasts show a sharp rise in inflation in the near term. Headline inflation among advanced
economies is expected to peak at 3.6 percent in the final months of 2021 (Figure 2.10, panel 1). The
forecast then drops to 3.2 percent by the end of the year and reaches about 2 percent by mid-2022. Risks
are tilted slightly to the upside over the medium term for advanced economies. These findings also suggest a 10 percent probability of inflation remaining above 3.4 percent through the end of 2021. While the density forecasts suggest that inflation is likely to peak later this year in advanced economies, uncertainty remains related to the factors mentioned earlier.

This seems a bit optimistic to me and more like they are trying to polish the proverbial turd. If we read between the lines, it looks like the IMF is starting to grow concerned with the prospects of greater year-end inflation, even if they give it only a 10 percent chance of occurring.

Despite their belief in the transitory inflation mantra, I find it curious that they ultimately hedge their inflation forecast in their study’s conclusion:

Rising commodity prices and supply chain bottlenecks are putting upward pressure on headline inflation rates. Moreover, the unprecedented nature of the current recovery has raised questions about how long supply will take to catch up with accelerating demand. These uncertainties are fueling worries that inflation could persistently overshoot central bank targets and de-anchor expectations, leading to a self-fulfilling inflation spiral.

I also find it interesting that IMF never blames inflation on the massive and reckless money printing by the world’s central banks. Oh, nothing to see here. Move along please.

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