Analysis: South Africa, emerging markets will bear brunt of global inflation fight
“Even if we enter a recession, we have basically little choice but to continue our policy path,” Schnabel said. “If there were a deanchoring of inflation expectations, the effect on the economy would be even worse.”
Lastly, a new inflation regime may be setting in that will keep upward pressure on prices for an extended period. “If so, the recent pickup in inflationary pressures may prove to be more persistent,” said Carstens, who heads a group often called the central bank of the world’s central banks. “The credibility of the last 40 years is on the line, so they are going to bring inflation down no matter what, including if that means collateral damage in the emerging world.”It pushes up borrowing costs and raises debt sustainability issues. It also channels liquidity to the US markets, pushing up emerging market risk premiums, making borrowing even more difficult.
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