Elevated inflation has become widespread. It raises the risk of further price increases because companies may be more inclined to raise prices when most others are doing the same. This would make high inflation more persistent, implying that it would take more time for inflation to converge back to target. Persistently high inflation could weaken the credibility of the central bank and cause an un-anchoring of long-term inflation expectations. To pre-empt such a development, monetary authorities could decide to tighten policy aggressively. Research by the Federal Reserve shows that US inflation has become more persistent. This helps to understand the increasingly hawkish rhetoric of Federal Reserve officials and their insistence on the need to frontload monetary tightening
After the World Trade Organisation (WTO), the International Monetary Fund also revised significantly lower its forecast for global trade for 2022. Exports are now expected to rise by 4.4%, compared with an estimate of 6% in October. This is above the WTO’s projections of 3% growth in 2022. Given the sharp rebound seen in 2021 – an increase of 9.8% – a lower rate of growth in goods exchange was expected. However, the war in Ukraine and the difficulties facing China in terms of its economy and the public health situation are important headwinds to growth. Some signs of this slowdown can already be seen: the global manufacturing PMI index for new export orders dropped sharply in March (-2.8 points to 48.2), reaching its lowest level in 18 months (chart 2)
China’s economic growth reached 4.8% year-on-year (y/y) in Q1 2022. It improved slightly over the first two months of the year, both in industry and in services, but this recovery was cut short in March. Economic conditions have worsened rapidly, as our barometer shows (narrowing of the blue area relative to the dotted area). This deterioration has resulted primarily from the resurgence of Covid-19 and mobility restrictions imposed in a number of regions in the country. In addition, short-term growth prospects are also looking bleaker due to deterioration in the international climate triggered by the war in Ukraine.
According to the latest figures from Johns Hopkins University, 5.9 million cases of Covid-19 were reported worldwide between 13 and 19 April (down 24% relative to the previous week), the lowest level since the end of December 2021. The number of cases continued to fall in Europe and Asia (down 26%), South America (down 24%) and Africa (down 13%), while a further increase was seen in North America (7%) for the second time in a row (chart 1). To date, the threshold of 11 billion vaccine doses has been reached, including 1.8 billion follow-up doses. This means that around 65% of the worldwide population has received at least one dose of a vaccine (chart 2).
