By Balazs Koranyi and Francesco Canepa

FRANKFURT (Reuters) – Supply constraints thwarting global economic growth could still get worse, keeping inflation elevated longer, even if the current spike in prices is still likely to remain temporary, the world’s top central bankers warned on Wednesday.

Pandemic disruptions have caused supply chain problems across continents. This has left the world without a wide range of goods and services, from microchips and car parts to containers that move goods over the oceans.

Jerome Powell, Federal Reserve Chair said that “it’s frustrating to see the supply chains problems and bottlenecks not getting better” at a conference.

Powell spoke at the European Central Bank Forum on Central Banking. “We expect that to continue through next year likely and keeping inflation up longer than what we thought,” Powell said.

Christine Lagarde of the ECB shared the same concerns as Powell. Lagarde said that they are uncertain about when this bottleneck will end. Economists had once predicted it would be weeks before it happened.

Lagarde explained that “the supply bottlenecks as well as the disruption to supply chains which we have experienced for a while… seem like they are continuing” and some sectors may be accelerating. “I’m thinking here about shipping, cargo handling and things like that.”

VERY ATTENTIVE

Global inflation has spiked in recent months on a surge in energy prices, and the production bottlenecks are pushing prices even higher, raising fears that the runup, if it lasts long enough, could seep into expectations and raise the overall profile of inflation.

Lagarde indicated that the ECB would pay “very careful attention” to second-round inflation effects. Andrew Bailey from the Bank of England, another participant at the forum said he will keep an “expectant eye” on inflation expectations.

The forum’s speaker, Andrew Bailey, said that if this increase in inflation is prolonged enough it would have an effect on how people view inflation. Powell stated that they closely watch this.

It is because central banks, which are the principal authority in controlling prices, do not have any influence on short-term supply disruptions. Therefore, they could be an observer, waiting for anomalies to correct themselves and not causing lasting damage.

Monetary policy can’t solve supply-side shocks. Bailey stated that monetary policy can’t produce computer chips or wind and it also cannot make truck drivers.

Although policymakers urged increased attention to inflation, everyone maintained their traditional view that this spike in inflation was temporary. Price rises will moderate next year as central banks target prices.

The debate over “sticky inflation” has fueled a discussion about how to undo crisis-era stimuli. Wednesday’s comments reinforced the expectation that the major central banks of the world will move according to vastly different timelines and remain out of line for many years.

Openly, the Fed, BoE and Bank of Canada discussed tightening policy while the central banks of countries such as South Korea and Norway have increased interest rates. This is the beginning of a long path to policy normalisation.

The Bank of Japan and the ECB are likely to remain the last movers after they have been undershooting inflation targets for many years.

Even though the ECB refuses to talk about tapering, it already indicated its willingness for them to overshoot their inflation targets as they would prefer not too soon.

Lagarde and Haruhiko Kuroda from Bank of Japan, who both expressed a positive outlook for growth, suggested this kind of patience. However, they also argued that the economies of these countries could soon return to their pre-pandemic levels.