Can rising inflation derail recovering global economy?

In an endeavour to fight the effects of the coronavirus pandemic on their respective economies, countries across the world have been taking different measures for many months. There have been new guidelines laid out by central banks and new strategies put in place to ensure that the work is done towards the recovery process, in correlation to the rest of the world.

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The US, the lifeline

If the economic hierarchy is to be examined currently, it can be seen that a superfluous boom of funds is underway in the US market and is consequently dripping down to different nations. This is fuelling world economic recovery like never before as well as encouraging businesses to do their best to meet the growing American demand.

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Economists are of the view that the role being played by the US is similar to the one China played in year 2008, when the Global financial crisis had crippled several economies.

Now while most economies are welcoming these huge demands with open arms, trouble is brewing in East Asia because of the disruptions being caused by this, such as logistical issues, shipping jams and so on.

There is also the possibility of central banks raising the rates of interests if things look unfavourable, making matters worse.

Also read: Is Kiwi Consumer confidence on a recovery mode?

So much so that economists are suggesting a wave of inflation stemming from these issues. Recently, China has raised alarm predicting that inflation may be on the way for it and other countries with similar fiscal states, besides the global economy in general.

Steps being taken

While efforts such as the US President pushing for a humongous US$6 trillion worth stimulus package and the rest of the leading countries in the G7 agreeing to spend as much as possible in order to fight their way through the economic blues, the brunt may have to be borne by developing economies in the process.

Increased spending and minimising taxes, in the big money countries will help the global economic stimulus and eventually lead to economic stability across the world, is what is being predicted.

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How are things at home?

Speaking of New Zealand, while the country is on its way to a sound economic recovery, pulling in good numbers consistently, it needs to be aware of the global situation and how it may impact its financial health.

No doubt, the trans-Tasman bubble opening in April led a lot of recovery from the tourism sector. However, the latest COVID-19 cases in New South Wales and other parts of Australia have paused the travel bubble between both the neighbouring countries.

Also read: Central Banks in Asia Facing The Brunt of Slow Economic Recovery.

The shortage of skilled labour is still looming large considering most international borders remain closed. Policy makers and local businesses need to work closely to help recovery to reach the pre-COVID-19 pandemic state.