Inflation surge 'temporary': BIS

ZURICH: The recent inflation surge is most likely a "temporary" phenomenon, the Bank for International Settlements said Tuesday. The BIS, dubbed the central bank of central banks, has worked up several scenarios to assess the challenges facing banks emerging from the coronavirus crisis.

"As of today, we at the BIS consider that it will most likely be temporary," general manager Agustin Carstens said of the inflation rise during a speech at the institution's annual general meeting. The acceleration of inflation is linked to one-off effects, he said, including the rebound in commodity prices and tight supplies due to the rapid recovery which "should dissipate reasonably quickly".

In May, consumer prices jumped five percent in the United States - their largest increase in nearly 13 years - and two percent in the eurozone: the upper limit of the target set by the European Central Bank, raising concerns among investors.

If the BIS sees it as a temporary phenomenon, the Swiss-based institution has nonetheless considered two other scenarios in order to assess the challenges that central banks will face in recovering from the Covid-19 pandemic.

While its base scenario is based on the idea of a relatively smooth economic recovery, the second scenario envisages a more marked acceleration than expected, under the effect of stimulus plans and a strong rebound in consumption.

Central banks would then risk having to tighten their monetary policies earlier than expected. Thanks to vast interventions, coupled with broad government plans to support the economy, "disaster was averted, and the global economy bounced back more quickly than expected", Carstens said.

However, the crisis is not over, as the recovery is "highly uneven and incomplete, and the global outlook is uncertain". The major long-term challenge for central banks will be to restore their leeway so that they can once again help the economy in future in the event of a recession or another unforeseen crisis.

Economists and policymakers have been at pains to stress that recent inflation surges in Europe and the United States are likely to be transitory, driven mainly by one-off effects linked to post-lockdown reopenings and supply chain bottlenecks.

Established in Basel in 1930, the BIS is owned by 62 central banks, representing countries that account for about 95 percent of global gross domestic product (GDP).