In chapter two of its ‘World Economic Outlook Report’, released on Wednesday, the IMF projected headline inflation in emerging market and developing economies to jump to 6.8 percent by the end of 2021 before declining to about 4 percent in 2022, with risks tilted to the upside over the medium term.

In advanced economies, the report expected inflation to reach a peak of 3.6 percent by the end of 2021 before decreasing to 2 percent by mid-2022.

“A key feature of the outlook is the significant cross-country heterogeneity across advanced and emerging markets and developing economies — and even within advanced economies. While the United States drives the strong inflation dynamics in advanced economies in the short term, with near-term risks tilted to the upside, underlying inflation dynamics in the euro area and Japan remain weak,” the report explained.

It also expected a sharp rise in housing prices and prolonged input supply shortages in both advanced economies and emerging market and developing economies, alongside continued food price pressures and currency depreciations in emerging and developing economies to keep inflation elevated for longer.

The report expounded that the COVID-19 pandemic has triggered an increase in prices in some sectors, mainly transportation, food, clothing, and communications.

“From a macroeconomic perspective, a sustained rise in inflation in advanced economies leading to an unanticipated withdrawal of monetary accommodation could disrupt financial markets.”

“Emerging market and developing economies would be especially affected from the resulting spillover effects through capital outflows and exchange rate depreciations. High inflation would also tend to hurt lower income individuals but could also benefit debtors while hurting lenders. Inflation can, therefore, have complex distributional consequences,” the report illustrated.

According to the report, headline inflation has grown rapidly in advanced economies and emerging market and developing economies alike since the beginning of 2021, though it has been relatively stable in low-income countries.

Also, core inflation — the change in the prices of goods and services excluding food and energy — went up in recent months.

These positions have been reached amid substantial policy support, as economies recover from the deep contraction caused by the pandemic in 2020.

Moreover, as economies reopen, the release of excess savings accumulated during the pandemic could further fuel private spending, and all of these factors have led to concern about the possibility of persistently high inflation going forward, the report highlighted.