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G20 mandated to address global inflation
To manage the demand side, the Group of 20 central banks will continue to precisely calibrate the pace of monetary policy tightening in a data-dependent and clearly communicated manner.
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President Joko Widodo (right) gestures as US President Joe Biden (front left), German Chancellor Olaf Scholz (back left), Indian Prime Minister Narendra Modi (back center) and other leaders walk together during a tree planting event at the Taman Hutan Raya Ngurah Rai Mangrove Forest, on the sidelines of the G20 summit meeting in Nusa Dua, Bali on November 16, 2022.
(AFP/Mast Irham)
Global problems require global solutions. Under the Indonesian Presidency, the Group of 20 has brought light to guide international efforts in addressing recent economic challenges, including inflation.
Amid the challenges of divided views and positions, the leaders of the world's 20 largest economies have unanimously adopted the Bali Leaders' Declaration 2022, a manifestation of joint actions and commitments to overcome global economic problems by prioritizing cooperation and collaboration. This spirit of multilateralism will advance the works to achieve strong, sustainable, balanced and inclusive growth.
According to the International Monetary Fund (IMF), global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022, the highest in almost the last three decades. Until October 2022, food and energy prices continued to drive global inflation surges. From a broader perspective, several factors cause current global inflation: cash stimulus during a pandemic, geopolitical issues, strong demand for goods and global supply chain problems.
Responding to the high inflation, many central banks have implemented a set of disinflationary policies, including raising interest rates. The United States Federal Reserve, one of the major central banks, has raised the Fed Fund Rate by 375 basis points (bps) since March 2022, the highest increase since the Housing Market Boom in the US in 2005/2006.
In addition, the Fed's hawkish monetary policy stance strengthened the US dollar exchange rate against many other currencies, the strongest in the last 20 years. This situation exacerbated inflation in various countries outside the US, especially those from imported goods.
The spirit of multilateralism by the G20 leaders in adopting the Bali Leaders’ Declaration resembles the light at the end of the tunnel for the economic challenges. Besides seriously promoting world peace, the G20 leaders continue emphasizing how to deal with the price stability issue, one of the most current global macroeconomic problems.
Food and energy security is one of the three priority issues at the 2022 G20 Summit. In the Leaders' Declaration, the G20 leaders committed to "take action to promote food and energy security and support stability of markets, providing temporary and targeted support to cushion the impact of price increases." This action will affect global inflation from the supply side.
