Skip to main content

High infla­tion has bolstered advanced eco­nom­ies.

 

IMF logo
High infla­tion has bolstered advanced eco­nom­ies’ pub­lic fin­ances, the IMF said yes­ter­day, as it called on gov­ern­ments to use the wind­fall to cut defi­cits.

Research pub­lished by the fund showed the sur­prise surge in prices over the past couple of years had helped lower debt bur­dens sub­stan­tially.

Accord­ing to the IMF’s data, high infla­tion led the US net debt bur­den to fall from 99 per cent of gross domestic product in 2020 to 95 per cent in 2022, des­pite the coun­try’s large pan­demic-era budget defi­cits. «You can­not keep sur­pris­ing people,» he said, adding fiscal author­it­ies should lower budget defi­cits to help cent­ral banks bring high price rises under con­trol.

High infla­tion delivered a pub­lic fin­ances wind­fall partly because the surge in prices in 2021-22 was more than expec­ted by investors. Many lost out by lend­ing to gov­ern­ments at low rates of return rather than demand­ing higher debt costs that usu­ally accom­pany higher infla­tion.

But Mauro said the bene­fit of infla­tion to tax­pay­ers at the expense of bond­hold­ers was unlikely to be repeated.

The shock to prices owing to sup­ply chain prob­lems dur­ing the pan­demic — and a surge in food and energy costs in Europe after Rus­sia’s full-scale inva­sion of Ukraine — is now being priced into bond mar­kets. Yields on the US bench­mark 10-year gov­ern­ment bond have risen from 1.1 per cent at the start of 2021 to 3.5 per cent today, with sim­ilar rises across advanced eco­nom­ies and at all matur­it­ies of debt.

www.sba.tax

Labels:

Comments

Post a Comment

Cloud Bookkeeping

US FED rate rise.

  The US Federal Reserve officials have indicated that they plan to resume increasing interest rates to control inflation in the world's biggest economy. During the June meeting, the Federal Open Market Committee reached a consensus to keep interest rates stable for the time being to evaluate whether further tightening of policy would be necessary. However, the majority of the committee anticipates that additional rate increases will be required in the future. The minutes of the meeting have recently been made public. According to the minutes, most participants believed maintaining the federal funds rate at 5 to 5.25 per cent was appropriate or acceptable, despite some individuals wanting to raise the acceleration due to slow progress in cooling inflation. Although Fed forecasts predicted a mild recession starting later in the year, policymakers faced challenges in interpreting data that showed a tight job market and only slight improvements in inflation. Additionally, officials gr...
Post a Comment
Read more

EU business slide.

  S&P Global’s flash eurozone composite purchasing managers’ index, a key gauge of business conditions for the manufacturing and services sector, fell 1 point to 47.1, figures showed yesterday. That is its lowest level since November 2020 and the fourth consecutive month below the crucial 50 mark separating growth from contraction. One of the few bright spots in the survey was that companies in all sectors reported a slight easing of cost pressures, price growth and supply chain constraints. However, prices charged for goods and services still rose at the sixth fastest rate since such data started in 2002. Jobs growth increased marginally from October but remained low compared with the past 18 months. Following a few months of falling price pressure in manufacturing and services, the October print shows an overall stabilisation said Jens Eisenschmidt, chief European economist at Morgan Stanley. However, German businesses, at the hub of Europe’s energy crisis, reported that manu...
1 comment
Read more

EU debt reduction

  Brussels wants to give EU capitals extra time to curb their debts and create space for public investment as part of an overhaul of the EU’s deficit rules .  The European Commission would table a proposal at the end of the month to reform the Stability and Growth Pact ,  under which it would work out multi-year ,  country-specific plans with capitals for getting their debt burdens under control ,  EU officials said .  The proposals come as member states face mounting fiscal burdens as they spend hundreds of billions of euros sheltering businesses and households from the energy crisis .  Under the new blueprint ,  the commission would propose a four- or five-year plan to an EU member state to get its public debt burden on a credible ,  downward trajectory ,  officials said . The national fiscal plan would need to pass a debt sustainability analysis and be approved by the commission and EU council .  The new regime would ditch an EU ...
Post a Comment
Read more