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Moody's: High inflation will be temporary, thanks to central bank targets

11/05/2022 11:58 AM

KUALA LUMPUR, May 11 (Bernama) -- The current high inflation will cause significant but temporary credit effects in many countries, as the actions of central banks will help push inflation lower next year, and ease further in 2024 with economic growth recovering towards trend, Moody’s Investors Service said in a report.

Managing director credit strategy Colin Ellis said the high inflation rates were unusual.

“Since 1990 central banks in Europe, the US and elsewhere have played a significant role in keeping inflation low. The high inflation this year will depress real wages, spending and growth.

“But we still expect inflation to fall back next year, absent other shocks, consistent with nominal anchors playing a key role,” he said.

He noted that since the early 1990s, inflation in many major economies has remained relatively low, as countries established inflation-targeting frameworks, typically with an independent central bank setting monetary policy via interest rates or quantitative easing.

While the experiences of individual countries differ, since then, most major advanced and emerging economies have contained inflation, at least until recently.

“Monetary policy effectiveness is key among the many factors that influence inflation dynamics in individual economies.

“Our analysis and modeling find evidence that inflation dynamics in many of the Group of 20 (G-20) economies shifted significantly when they started inflation targeting over the past 30 years,” he said.

Excluding the US, EU countries and China, the following G-20 economies have adopted inflation targeting since 1990: Australia (Aaa stable), Brazil (Ba2 stable), Canada (Aaa stable), India (Baa3 stable), Indonesia (Baa2 stable), Japan (A1 stable), South Korea (Aa2 stable), Mexico (Baa1 negative), Russia, South Africa (Ba2 stable), Turkey (B2 negative), and the UK (Aa3 stable).

Saudi Arabia (A1 stable) maintains a currency peg against the dollar. Argentina's (Ca stable) experience, with inflation targeting started in 2016 and ended just 25 months later in 2018.




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