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Dear maria, In today's edition, we highlight: The costs of misreading inflation The managing director in Africa Haiti's Food Shock Financing World Uncertainty Index

FINANCE & DEVELOPMENT The Costs of Misreading Inflation (Credit: Adobe Stock/Aerial-Drone) Central bankers might have snuffed out inflation sooner had they paid more attention to spiraling costs in one overlooked industry. Shocks in the shipping industry can alert central banks to price perils and reduce the risk of once again falling behind the curve, Georgetown University’s Jonathan Ostry writes in an online exclusive for F&D magazine. Even as Federal Reserve Chairman Jerome Powell and other policymakers insisted that inflation was only transitory in late 2021, there were signs from the shipping industry of more persistent price pressures. By October 2021, the cost of shipping containers by maritime freight had increased by over 600 percent from pre-pandemic levels, while the cost of shipping bulk commodities by sea had more than tripled, according to a recent study by Ostry and co-authors from the IMF. Given the actual increase in global shipping costs during 2021, they estimate that the impact on inflation in 2022 was more than 2 percentage points—a huge effect that few central banks would dismiss. “While policymakers may get a pass for not factoring into their decisions what was unknowable a year ago, they should be held accountable for missing known drivers of inflation, especially those that pointed to enduring price pressures,” Ostry writes. Read the article

The Resilience and Sustainability Trust recognizes vulnerability as a criterion for concessional finance. In this podcast, IMF Managing Director Kristalina Georgieva discusses the RST with Prime Minister Mia Motley of Barbados, Rwanda’s President Paul Kagame, WTO Director-General Ngozi Okonjo-Iweala, and Makhtar Diop, Managing Director of the International Finance Corporation. The discussion is moderated by Rajiv Shah, President of the Rockefeller Foundation.

MANAGING DIRECTOR IN AFRICA Reform progress in Rwanda and Zambia

Kristalina Georgieva congratulated Rwanda on being the first country in Africa to access the IMF’s Resilience and Sustainability Trust at the end of a visit this week, which also included discussions with finance ministers and central bankers from the East African Community, a meeting with green entrepreneurs, as well as interviews with Rwanda TV and a national newspaper. Earlier, in Zambia, the managing director spoke with university students, visited a school and discussed the economic outlook in a two-part interview (part 1 and part 2). Georgieva commended Zambia’s efforts to focus spending on education and health and to fight corruption. Visit the managing director’s Twitter feed for more highlights from her Africa trip.

GLOBAL FOOD CRISIS Haiti Taps Food Shock Financing (Credit: Getty Images/Emily_M_Wilson) Haiti has become the latest country to tap the IMF’s Food Shock Window, a new channel of emergency financing for countries that are facing balance of payments pressures from the global food crisis. The Fund’s Executive Board approved a $105-million disbursement to stave off shortages of food supplies. Haiti has been hit hard by the global food price shock. Record price inflation has worsened the Caribbean nation’s fragility. With more than half the population already below the poverty line, Haiti faces a dire humanitarian crisis, with an expected financing gap of at least $105 million this fiscal year. This shock compounds the hardships of an already highly fragile country—also suffering a cholera health emergency and serious security risks. As well as filling the financing gap, Antoinette Sayeh, Deputy Managing Director and Acting Chair, said IMF emergency support would “support those most affected by food price rises through feeding programs and cash and in-kind transfers to vulnerable households, waives school fees and other measures.” In a blog last year, the IMF’s managing director said only rapid action could ease suffering of those without enough to eat and provide financing to countries in need. Read the blog

The shocks that have shaken the global economy in recent years have introduced a new normal for turbulence, driven in some cases by political fragmentation between countries. These episodes have also lifted uncertainty to exceptionally high levels, which in turn hurts economic growth. As the Chart of the Week shows, the IMF’s World Uncertainty Index has fallen for the most recent month of data but has continued to hit elevated levels in recent times owing to Russia’s invasion of Ukraine, the cost-of-living crisis and other shocks. See the interactive chart

Weekly Roundup STAFF PAPER Dollar Lenders of Last Resort Central banks may over-accumulate dollar reserves because they do not realize that this exacerbates a global scarcity of dollar-denominated safe assets, according to a new working paper by IMF staff. This scarcity of safe assets lowers dollar interest rates and encourages firms to increase the currency mismatch of their liabilities by borrowing more heavily in dollars than is justified by their operating exposures. A global regulator would prefer central banks to hold fewer dollar reserves and instead use existing regulatory tools more aggressively to shore up financial stability, the authors write. STAFF PAPER Macroprudential Policies Many countries use “macroprudential policies” to respond to external shocks, such as US monetary policy surprises or fluctuations in capital flows. In a new working paper, IMF staff construct a model of a small open economy that adjusts borrower’s loan-to-value ratios and bank’s capital adequacy ratios. The authors find that countercyclical macroprudential policy is more likely in countries whose foreign-currency liabilities are larger than their foreign-currency assets. Domestic credit and interest rates are also more insulated from US monetary tightening in countries that employ macroprudential policies countercyclically.

MARK YOUR CALENDER

JAN 30, 8:30 PM EST | JAN 31, 9:30 AM SGT World Economic Outlook Update The IMF's chief economist, Pierre-Olivier Gourinchas, will launch the World Economic Outlook Update at a press briefing in Singapore. Watch here JAN 30, 9:00 AM EST | JAN 30, 3:00 PM CET Middle East and North Africa in 2023 Jihad Azour, director of the IMF’s Middle East and Central Asia Department, will present analysis of the outlook at an online event hosted by Mediterranean Dialogues. Register here

Thank you again very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar.

Nick Owen Editor IMF Weekend Read nowen@IMF.org