: Caught in inflation #IndiaNEWS #News By V Thiagarajan  The International Monetary Fund (IMF) recently slashed its forecast for global economic growth by nearly a full percentage point citing Russia’s

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Caught in inflation #IndiaNEWS #News
By V Thiagarajan
 The International Monetary Fund (IMF) recently slashed its forecast for global economic growth by nearly a full percentage point citing Russia’s war in Ukraine, and warned that the world must brace itself for an economic slowdown as well as a burst in inflation.
The IMF expects inflation to remain elevated throughout the year, projecting it at 5. 7% in advanced economies and 8. 7% in emerging markets. Rising prices around the world show no signs of abating, the IMF said, even if supply chain problems ease. As such, we can expect the global economy to endure a painful period of lower growth and higher inflation during this year as well as next. While the accuracy of forecasts by the IMF remains debatable, there are other economic forecasts, which have broadly been on the same lines.
The Peterson Institute for International Economics expects global growth to decline from a rapid 5. 8% in 2021 to 3. 3% annually in 2022 and 2023. According to the Bank for International Settlements, more than half of emerging economies have inflation rates above 7% and 60% of “advanced economies,� including the US and the Euro area, have inflation over 5%, the largest share since the 1980s.
We all accept that this is indeed another moment of reckoning for the global economy. It is ironic that all the economic crises in this century, be it the GFC 2008 or the Pandemic 2020, have been addressed by coordinated action both from fiscal and monetary policy across the globe whereas the responsibility for containing the current spell of inflation has been shouldered only by the central banks.
 According to the Bank for International Settlements, more than half of emerging economies have inflation rates above 7%, and 60% of ‘advanced economies,’ including the US and the Euro area, have inflation over 5%, the largest share since the 1980s
Monetary policymakers have begun using their monetary policy tools by raising rates and pruning their balance sheets or by cautioning the markets about their upcoming policy decisions whereas the fiscal authorities have yet to take any remedial measures.
Tale of Two Variables
The two most critical variables in any economy are growth and inflation. There are secular and cyclical trends that determine the trajectory of growth as well as inflation. The level of growth or inflation is not as important as the direction because the economy and asset markets are relative, not static.   It is imperative to have a firm understanding of these secular and cyclical trends.
Markets commonly mistake cyclical changes in the economy for structural or secular changes, which leads to poor asset allocation decisions.

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