The Institute of International Finance (IIF) has said that the global economy has been hit by rising inflation and an interest rate shock that has shown no signs of declining, bne IntelliNews reported.
“We are in a global interest rate and high inflation shock. Longer-dated government bond yields have risen sharply across advanced economies, tightening financial conditions, weighing on growth, and pushing up risk aversion,” IIF Managing Director Robin Brooks said in a note along with economists Jonathan Fortun and Jack Pingle.
“This is also weighing on flows to emerging markets, with our high-frequency flow tracking across the world’s biggest EMs registering outflows similar in scale to the RMB devaluation scare in 2015 and 2016,” Brookes said.
Inflation has hiked in markets around the developing and the developed world alike, according to the publication.
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Inflation is also starting to run out of control, according to the publication, in the Central European markets, with sharp monetary policy rate increases in those countries failing to reduce inflation’s “explosive growth”.
Czechia, Moldova, Slovakia, Romania, Poland, and Bulgaria, among others, are witnessing double-digit rates of inflation.
The reason for the hike in inflation has been blamed on the supply chain disruption caused due to the coronavirus pandemic and then further intensified due to the food shock as a result of the Russia-Ukraine war.
As a result, the World Bank lowered the global economic outlook in May to 2.9% for this year and warned that the world was facing a “real danger of stagflation”.