JACKSON HOLE, Wyo. (Reuters) - Central banks need to urgently tackle inflation and recognise that the supply shocks that are pushing prices higher could linger, keeping persistent upward pressure on prices, Bank for International Settlements General Manager Agustín Carstens said.
Many of the world's top economies are struggling with inflation levels not seen in half a century and post-pandemic supply disruptions are accounting for a large chunk of this price surge.
While the disruptions were expected to last just months, Carstens argued that a host of factors from deglobalisation and demographic changes to more expensive production in emerging markets could make supply constraints more permanent.
"The global economy seems to be on the cusp of a historic change as many of the aggregate supply tailwinds that have kept a lid on inflation look set to turn into headwinds," said Carstens, who heads a group often called the central bank of the world's central banks.
"If so, the recent pickup in inflationary pressures may prove to be more persistent," Carstens told the U.S. Federal Reserve's Jackson Hole Economic Symposium.
The realignment of global alliances, a factor of Russia's war in Ukraine, is also disrupting supplies and access to global value chains or financial markets can no longer be taken for granted, he said.
Central banks have been raising interest rates to ward off the threat of persistent inflation but nearly all, including the U.S. Federal Reserve, have been criticised for recognising the price pressure too late.
Still, others have been far behind the Fed. The European Central Bank has only raised rates once and at zero, its main rate is still providing exceptional stimulus.
Carstens argued that central bank policy has little power over supply side disruptions so policymakers should simply focus on inflation.
"Central banks cannot hope to smooth out all economic air pockets, and must instead focus first and foremost on keeping inflation low and stable," Carstens said. "Monetary policy needs to meet the urgent challenge of dealing with the current inflation threat."
(Reporting by Balazs Koranyi; Editing by Chizu Nomiyama)