"The key for central banks is to act quickly and decisively before inflation becomes entrenched," said BIS general manager Agustin Carstens.
"If it does, the costs of bringing it back under control will be higher. The longer-term benefits of preserving stability for households and businesses outweigh any short-term costs."
In restoring low, stable inflation, central banks should seek to minimise the hit to economic activity, in turn safeguarding financial stability, the BIS report said.
BIS said engineering a so-called soft landing had historically been difficult, and the starting conditions now were making the task all the more challenging.
"It would be more desirable if we could have a soft landing because that would mean that the tightening of monetary policy could be more subdued," Carstens told a press conference.
"But even if this is not the case, definitely the priority should be to combat inflation," to prevent the world economy from slumping as BIS said the global economy risked entering a new era of high inflation.
The dangers of stagflation—stagnant growth coupled with rising prices—loom large, as a combination of lingering disruptions from the pandemic, the war in Ukraine, soaring commodity prices and financial vulnerabilities cloud the outlook, it said.
Policymakers must press ahead with reforms to support long-term growth and lay the groundwork for more normal fiscal and monetary policy settings, BIS was quoted as saying by global newswires.
Established in 1930, BIS is owned by 62 central banks, representing countries that account for about 95 per cent of global gross domestic product.
ALCHEMPro News Desk (DS)
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