MNI: Central Banks Need 3 Years To Rebalance Inflation- IMF

International Monetary Fund researchers said Wednesday that central banks likely need three years following recent inflation shocks to slow price gains back to target, calling the risk of embedded price expectations a "specter" hanging over policymakers. (See: MNI INTERVIEW: Higher Rates Finally Begin To Bite US Firms)

The delay is linked to a large share of people with backward-looking price expectations and officials can boost the chances of a soft landing with improved communication that makes people more forward-looking. That's according to a paper by IMF economists Silvia Albrizio and John Bluedorn published as a chapter of the fund's World Economic Outlook.

Inflation peaked across many economies in 2022 as a result of the Covid pandemic and the Ukraine invasion, and after lagging the inflation surge many central banks took on the most aggressive tightening campaign in decades. More recently officials at the Fed and ECB have started to focus on keeping rates high for long and downplayed the prospect of rate cuts, noting stubborn core inflation.

"The specter of high inflation becoming embedded in expectations and leading to pricing choices that keep inflation high haunts central banks," the paper said.

While better communication may help that's no substitute for traditional monetary tools, the IMF said, noting any new style may "take time or be more difficult to implement than tighter cyclical policies."