Bank for International Settlements: Stagflation may end era of western prosperity

A man exchanges Nigeria's currency Naira for US dollars in Lagos, Nigeria, on April 19, 2021. - Nigeria's economy was already struggling with a fall in the price of oil, Nigeria's major export, and a weak local naira currency, before the global pandemic struck. Now Nigeria's inflation has soared to a four-year high of more than 18 percent in March 2021, with food prices up 22.9 percent, according to the National Bureau of Statistics. (Photo by PIUS UTOMI EKPEI / AFP) (Photo by PIUS UTOMI EKPEI/AFP via Getty Images)

A man exchanges Nigeria’s currency Naira for US dollars in Lagos, Nigeria, on April 19, 2021. (Photo by PIUS UTOMI EKPEI/AFP via Getty Images)

UPDATED 11:23 AM PT – Monday, June 27, 2022

The Central Bank of all Central Banks warned high inflation may end the era of economic prosperity in western countries. According to the Bank for International Settlements (BIS) that oversees Central Banks, the only way to prevent an inflationary shock is to sharply increase interest rates.

The BIS added, the global economy is entering a period of stagflation where prices grow out of control while economic growth is low or negative. The BIS said national finance ministries and Central Banks have exhausted their capabilities to prevent stagflation.

“The space of fiscal and monetary policy has been to large extent depleted,” stated Agustín Carstens, BIS General Manager. “Therefore, we should not depend so much on a fiscal and monetary policy to induce economic growth.
We need to pass it along so to say to structural policies and, therefore, other sources of growth.”

The Swiss-based bank also said western countries must undertake economic reforms to ensure growth in the non-financial sector.

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Amber Coakley
Author: Amber Coakley

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