(Bloomberg). — According to Kenji Okamura, International Monetary Fund deputy managing director, inflation may be faster than current central bankers anticipate.

“The risk is rising that inflation expectations drift away from central bank inflation targets, prompting a more aggressive tightening response from policy makers,” Okamura said in a written interview with Bloomberg News last week.

Widely expected, Federal Reserve Chair Jerome Powell will announce an increase of half percent to the interest rate this week in order to address inflation’s fastest pace since decades. Okamura’s comments suggest other major central banks may still be underestimating the risk that costs keep rising beyond their comfort zones. 

“They must keep their finger on the pulse of the economy and adjust policy as needed,” said Okamura. “As they tighten, major central banks should communicate clearly, mindful of spillover risks to vulnerable emerging, and developing economies.”

The deputy managing director, who took on his role in December after decades of serving in Japan’s finance ministry, covered a range of issues in the written interview. Below are extracts

Q: What are some of the most serious risks for the global economy’s future?

“We continue to stress that the most important priority for the global economy is to end the war in Ukraine. The war has a direct impact on many of the other challenges we face, such as high debt levels, food security, and inflation.”

Q: Which way do you view the War in Ukraine? And its potential to cause further destruction of the Global Economy? 

“Aside from the human toll, the conflict is resulting in dramatic and far‑reaching economic consequences, with spillovers to the region and the world. This war will reduce economic growth and raise inflation. 

Q: Are you concerned about the global trend towards de-globalization, and the repatriation production centers?

“We should recognize that globalization has brought significant economic benefits, particularly to the developing world but also by lowering costs and increasing efficiency for all countries. But there is clearly a backlash underway, with a rise in protectionism and now rising concerns brought on by disruptions to supply chains due to war and the pandemic.”

“We are concerned about countries dividing into blocs, which would be detrimental to global prosperity.”

Q: How are governments spending their money to support recovery from the pandemic Which areas need additional support?

“The international community should recognize that its pandemic financing addresses a systemic risk to the global economy, not just the development need of a particular country. The international community should provide additional funds to combat pandemics in order to strengthen national health systems and increase their effectiveness overseas. This will require about $15 billion in grants this year and $10 billion annually after that.”

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