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Threat to the global economy is back – IMF

Global inflation was back after a prolonged period of stable prices, a top official at the International Monetary Fund said Thursday, adding that policy makers should act aggressively if things got out of hand.

John Lipsky, the fund’s first deputy managing director, said that skyrocketing energy and commodity prices had dangerous repercussions for the world economy. Oil prices are hovering above $123 a barrel. “Signs of more general inflation pressures would justify a decisive policy response, lest the impressive gains in global stability attained in recent years be sacrificed,” he said in a speech at the Council on Foreign Relations in New York. Lipsky said inflation concerns had resurfaced even as global growth slowed substantially. “The effects of the slowdown are being felt most keenly in the US, but growth in all regions of the world is slowing,” he told the audience.

The IMF remained optimistic that the world would not experience a return to a 1970s-style inflation spiral, Lipsky said. But he added that the risk of such a distressing outcome could not be dismissed. Not only have energy prices repeatedly probed new highs, but rises in commodity costs have followed suit, leading to food shortages in some of the poorer countries. Because these increases reflected a rise in basic demand, they were likely to linger for the foreseeable future, Lipsky said. (Business Report)