IMF Warns Flood of Dollars Could Push U.S. Inflation Rate Higher

The International Monetary Fund (IMF) on Wednesday said further fiscal support in the United States could fuel inflationary pressures and warned that the risk of a sustained rise in prices could require raising interest rates earlier than expected, Andrea Shalal reported for Reuters.

Higher US interest rates, in turn, could lead to a sharp tightening of global financial conditions and significant capital outflows from emerging and developing economies, IMF Managing Director Kristalina Georgieva said in a blog published Wednesday with the IMF's surveillance note for G20 countries.

The IMF's assessment of US inflation risks comes amid sharp criticism by Republican lawmakers of President Joe Biden's multi-trillion-dollar plans to boost spending on infrastructure, child care, community college tuition, and expanded coverage of home care for the elderly and disabled.

Georgieva said an accelerated recovery from the COVID-19 pandemic in the US, where growth is seen reaching 7% in 2021, would benefit many countries through increased trade, but rising inflation could be more sustained than expected.

The IMF forecasts global growth of 6%. Other countries face rising commodity and food prices, which are now at their highest level since 2014, putting millions of people at risk of food insecurity, the IMF said in its report.

Market expectations suggested commodity prices would remain contained over the next few years, but inflation developments varied within advanced economies and were picking up more rapidly in Britain, the US, and the euro area, while remaining subdued in others, like Japan.

The IMF said the global economic outlook remained uncertain given questions about the evolution of the pandemic and progress on vaccinations, as well as the possibility that the pickup in inflation would prove "more persistent" than expected.

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