Some inflation had been expected after the deep recession in 2020, but with the frictions between supply and demand not matching up, inflation pressures will remain until some time in the middle of 2022, according to Gita Gopinath, the chief economist for the International Monetary Fund.
"We've had a rebound in global demand," Gopinath said on CBS' "Face the Nation." "We've seen commodity prices come back up after crashing last year, but we're also now seeing the frictions between supply and demand not matching up. We're seeing supply chain disruptions around the world because the fact is the grip of the pandemic remains, even though maybe it's somewhat lighter."
But more normal levels of inflation should return toward the end of 2022, Gopinath said, but she warned that costs are still going up, particularly with energy prices rising sharply, which will "feed into headline inflation."
Meanwhile, the IMF has said that any change in the size of the spending bill proposed by President Joe Biden could have an impact on global growth, and even though the bill's price tag has been cut during negotiations, the measure could still affect growth, Gopinath said.
The negotiations underway call for both cuts in spending and tax increases, so the effect could be similar on a global scale, she explained.
Further, the bill's provisions for paid parental leave are being trimmed back from 12 weeks to four weeks, which Gopinath said can have adverse effects after the COVID-19 pandemic hit women's workforce numbers hard.
"Having this kind of paid family leave will help bring back women much more quickly into the workforce," she said. "We need to bring all the women who have left the labor force to return back to the market, to get a full recovery."
Four weeks of leave is better than nothing, so even that is progress, but it's not enough, Gopinath continued.
"What we are seeing around the world is we are seeing labor markets recovering much more slowly than output," said Gopinath. "In the United States, while we're seeing men come back much faster, women are taking longer for that to happen, so we need to pay very close attention to making sure it's attractive for women to return to the workforce."
China is also facing a debt crisis, and Gopinath pointed out that the property sector is an important part of that country's economy.
"Our view is the government has the resources and ability to rethink the problem," she said. "While we will see shake-up happening in the real estate sector, it will be contained and will not spill over more broadly to China's economy. Therefore, we won't see a substantial slowing of growth...it is a risk. It's a downside risk that we're paying very close attention to, but as of now, we believe that the effects can be contained."
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