Business cycle | The International Monetary Fund warns of the risks of inflation

International the International Monetary Fund (IMF) warns in its forecast published on Tuesday that the slowdown in inflation may persist.

This would mean that central banks may have to keep their monetary policy relatively tight for longer than expected.

According to the IMF, the slowdown in inflation is held back especially by service inflation, which has proven to be persistent in many countries due to large wage increases. According to the IMF, increased trade political tensions and political instability caused by the elections may also hinder the slowdown of inflation.

On the other hand, the inflationary pressure has been mitigated by the noticeable slowdown in the increase in the prices of goods.

European the central bank (ECB) started cutting its key interest rates in June, but the US central bank is still on watch.

Financial markets expect the ECB to cut its key interest rates two more times by 0.25 percentage points this year, and the US central bank to start interest rate cuts only in the fall. The goal of both central banks is two to two percent inflation.

In the euro area, service inflation was 4.1 percent in June and 5.1 percent in the United States. Total inflation slowed to 2.5 percent in the euro area and 3.0 percent in the United States.

“When the inflation data show that price stability will return sustainably, the monetary policy should be eased in stages, which would at the same time give room for the necessary balancing of the public finances”, the IMF estimates.

It estimates that the largest central banks will cut key interest rates in the fall, although inflation trends cause differences in how much interest rates can be lowered.

In the new in its forecast, the IMF maintains its estimate that the world economy will grow by 3.2 percent this year. Next year, according to the IMF, the economy will grow by 3.3 percent, which would be 0.1 percentage point more than in the forecast published in April.

The global economy began to strengthen already at the beginning of the year, because especially the export of technology from Asia boosted trade. Therefore, according to the IMF, economic growth was surprisingly strong at the beginning of the year.

The IMF predicts that the German economy will grow by 0.2 percent this year and 1.3 percent next year. Germany is the largest economy in the Eurozone. The second largest national economy is France, whose economy the IMF estimates will grow by 0.9 percent this year and 1.3 percent next year.