IMF warns unemployment will have to rise in battle against inflation

An international Monetary Fund (IMF) official has insisted that unemployment will have to rise as part of the battle against inflation.

Gita Gopinath, the IMF’s deputy managing director, said central banks such as the Bank of England must ‘stay the course’ on hiking rates.

But speaking at the annual meeting of the World Economic Forum in Davos, she said: ‘Everything we know about how monetary policy works – when you tighten interest rates so much – is for the unemployment rate to go up. 

Jobs warning: Gita Gopinath, the IMF’s deputy managing director, said central banks such as the Bank of England must ‘stay the course’ on hiking rates

That’s how you bring down inflation durably.’

Gopinath, 51, said it would be a ‘tough year’ for jobs but it would come at a time when unemployment was at record lows in the US and in the eurozone. 

She added: ‘We should be feeling good when inflation comes back down to more reasonable levels.’

But her comments acknowledge the reality that raising interest rates to tackle soar-away inflation is likely to result in the grim consequence of joblessness for many.