Countries around the world may be approaching a tipping point where sky-high inflation rates are entrenched in their economies, warned the Bank for International Settlements (BIS) in a new report.

Canada is just one of many countries experiencing unusually high inflation levels that have left individuals struggling financially. The BIS notes that whether inflation becomes entrenched will ultimately depend on whether wages keep pace with rising prices, cautioning that "the risk should not be underestimated."

Economies across the globe have seen rising prices on everything from food to energy, with BIS saying inflation has now moved out of the zone of "rational inattention." This means its impact on behaviour has grown to the point where people can no longer afford to overlook it. Workers are likely to then seek to recoup their purchasing power losses through their wages.

Because of this, BIS cautions that the tipping point may be approaching where inflationary psychology spreads and becomes entrenched, leading to a major paradigm shift. But it won't stop there. The organization says that this may turn into a period of stagflation -- where inflation rates are high and economic growth slows -- similar to what was seen in the 1970s, but with new modern factors.

"The new element is that, against the backdrop of historically low interest rates, debt levels -- private and public -- have never been as high," the report reads. "This is far from inconsequential. Moreover, the monetary and financial system is in the throes of the digital revolution. This, too, albeit in a different way, is far from immaterial."

So far, wage growth has been uneven across countries, the report says, but has been especially strong in countries where demand pressures are more evident. The bulk wage wage renegotiations, however, are still to come.

Economic growth has already slowed, but as BIS warns, "much of the impact of developments in commodity markets is still to be felt, and macro-financial vulnerabilities loom large." So far, the commodity market has already seen higher prices, but the effects on it could become much bigger if supply issues kick in as well. Fuel, which has already seen both supply issues and skyrocketing prices, has embargoes and price caps coming its way, BIS says. But soaring food prices, worsened by the Russia-Ukraine war as major staples like wheat and fertilizer become more scarce, "threaten to trigger major social and political unrest, especially in lower-income countries."

"A food crisis is a humanitarian calamity that may also have crippling consequences for the economy," the report notes.

Central banks across the globe have made changes to their interest rates in attempts to bridle inflation. The Bank of Canada has implemented three rate hikes this year, with a potential 0.75% jump coming next month And earlier this month, the U.S. Federal Reserve announced the largest interest rate hike the country has seen since the early 1990s.

"The key for central banks is to act quickly and decisively before inflation becomes entrenched," said BIS General Manager Augustín 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."

The path forward will no doubt be challenging, but BIS lays out steps that governments around the world will need to take to limit economic pain. For one, it advises that a country's additional government supports given to residents to help offset the costs of food and energy be targeted and temporary, "so as not to endanger fiscal sustainability further."

"So far, however, governments have relied more on untargeted measures, which are more costly and harder to reverse," the report says.

The organization also lays out two possible scenarios for how the economic tensions will play out. In one, bottlenecks end and the war-induced increase in commodity prices reverses, causing inflationary pressures to ease spontaneously. In the other -- a worst-case scenario -- stubborn inflation pressures prompt stronger tightening, which could trigger a larger slowdown, including a recession. Which of these will occur remains to be seen.