Inflation will continue to be a major concern in 2022, according to RBC Economics

According to a survey from RBC Economics, inflation remains the most pressing concern as the global economy recovers from the COVID-19 pandemic.

The analysis underscores the shadow of uncertainty connected with the new Omicron version, as well as the residual policy assistance and low interest rates that continue to act as a balm to consumer and business confidence.

According to RBC, the global economy has been marked by a strong spike in inflation this year. According to the bank, Canada’s inflation rate hit a 19-year high in October, with price hikes spreading.

“In the advanced economies we cover, there have been many bumps on the road to recovery,” reads the report. “The discovery of the most recent variant of COVID-19, Omicron, cast another shadow on the outlook, though it remains unclear whether steps beyond travel restrictions and increasing vaccination rates will be required. Should broad-based curbs on activity result, it would delay when Canada, the US, UK, and Euro-area fully recover their pandemic-related losses into 2022.”

RBC warns that 2022 may not necessarily be smooth sailing, especially with the new Omicron model.

However, according to RBC, there are issues that could hinder growth in 2022.

Despite this, demand remains strong, mainly to improving labour market circumstances and increased savings accumulated during the pandemic and accompanying restrictive measures.

“We are optimistic about the outlook but risks remain elevated given the uncertain path of the virus. Our baseline assumption is that given the high level of vaccinations in the countries we watch closely, future restrictions on activity will be limited,” reads the report.

“Supply chains are impaired, input costs have risen, labour shortages are widespread. We expect supply chain bottlenecks and growth in business input costs to gradually ease next year, but labour shortages will remain and keep a cap on near-term GDP growth prospects,” continued the report.

While the risks to the economy have decreased as vaccination rates have climbed, RBC is ready for potentially difficult inflation situations. The bank attributes the increase in inflation rates to base effects related with the reopening, increased commodity prices, policy support, and higher input costs.

“Some of these factors will ease as time passes, however, consumer demand is strengthening and additional production capacity is limited,” reads the report. “With more purchasing power chasing increasingly scarce supply of goods and services, inflation rates are likely to remain above central banks’ targets throughout 2022.”

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