The world’s major central banks are wondering how to deal with rising living costs. Raising interest rates could hurt recovery after a pandemic. If you wait too long, inflation can get out of control.
If there’s one word that keeps the Federal Reserve Chairman Jerome Powell awake at night, it’s “temporary.”
By many means US economy I’m back from the pandemic recession. The unemployment rate fell to 4.6% in October, down from the dizzying peak of the pandemic of 14.8%. The employment market is so hot that record numbers of people have stopped finding new posts and wages are rising. The stock market continues to record record highs. People are spending again.
Still, inflationary anxiety depends on it all. Inflation in the United States has skyrocketed to 6.2% annually due to rising energy costs, rising consumption and supply shortages. This is a level that has not been seen for over 30 years. The Powell and Biden administrations have repeatedly stated that these rises are temporary and will recede as the pandemic’s economic impact diminishes. However, prices continue to rise.
The political convenience of the Republicans and, undoubtedly, the fear of astronomical inflation in media coverage of inflation worried US consumers.US consumer confidence Low price for the first time in 10 years In November.
The Fed’s main tool for controlling inflation is to raise interest rates. It was a blunt instrument and one Powell was cautious in using it. The dilemma is clear. Raising rates too quickly can stall confusing recovery and can be counterproductive if the actual price increase is temporary. However, failure to control inflation can lead to runaway price increases, more rate hikes, and recessions in the worst-case scenarios.
Bank of England is expected to be the first major central bank to raise interest rates When officials meet next month..
Analysts in many cities said that when inflation surged to 4.2% in October, it would be at its highest level in 10 years, with policy makers raising base interest rates from 0.1% prior to the rise to 0.5% in February. I think it will be raised to 0.25%.
As one of the world’s most open economies, with more than one-third of GDP dependent on trade, the UK suffers most from supply chain crises and rising energy prices.
Brexit, on the other hand, once Record level of vacancies..
Policy makers are now afraid that workers, who are bold due to the shortage of people to fill vacancies, will demand higher wages to cover higher living costs. This can cause a damaging wage / price spiral that lasts for years.
Central bank critics ask what higher borrowing costs do to calm energy prices as determined by the global market. They say there is little evidence that labor shortages can be resolved by making access to credits more expensive.
Instead, rising interest rates can further undermine the standard of living of those who rely on credit to survive.
Traders bet on rate hikes from the Bank of England and the Federal Reserve Board, European Central Bank The (ECB) has sent a clear message: don’t expect the same move from Frankfurt.
Inflation in the euro area is currently 4.1%, the highest level in 13 years, but price increases vary widely across the euro area.
The ECB sets interest rates on all 19 members of the Eurocurrency Union. Its head, Christine Lagarde, warned on Friday that pressing a button too early could hurt recovery from a pandemic.
“When purchasing power is already squeezed by high energy and fuel costs, excessive tightening will represent an unjustified headwind for recovery,” she said.
Oliver Lacaw, Chief German Economist at Oxford University EconomyI agree with the ECB that inflation in the euro area is temporary. His team predicts that inflation will slow to 2% in 2022, after an average of 2.4% this year.
He recommends relaxing Quantitative easing Plans (asset purchase programs) and their pandemic brothers before raising the cost of borrowing money.
“I suddenly talked about raising interest rates before normalizing the purchase of quantitative easing, but I don’t think it makes much sense,” he said.
French interest rates are set by the ECB in Strasbourg, but inflation rates vary from eurozone country to country and the government has some discretion in how to manage price increases.
October The annual inflation rate was 2.6%, The highest since 2008, pushed up by a 20% rise in energy prices.
Prime Minister Jean Castex has announced payments of € 100 (£ 84) of “inflation compensation”. It will be paid to everyone with a monthly income of less than 2,000 euros, an estimated 38 million people.
Ministers also intervened in energy prices. Gas prices will be frozen until April next year, and electricity prices will be limited to a 4% increase.
Inflation is “essentially temporary, but it could last for a few more quarters,” the Bank of France’s latest forecast says. Governor Francois Billroy de Garhow said there was no reason for the ECB to raise interest rates next year.
The Reserve Bank of Australia, Australia’s central bank, appears to rely on “Australia’s exceptionalism” to avoid raising its official cash rate from its all-time low of 0.1% by 2024.
Gareth Aird, head of Australia’s economic sector at Commonwealth, Australia’s largest bank, said in a recent briefing note that “RBA has heard as much as possible about the inflation outlook on every occasion.” Stated.
As in other places, inflation is ongoing.Australian September core consumer prices The quarter rose 0.7 points to 2.1%. It is the first time in six years that the inflation index has risen to the target range of 2% to 3% since the 1990s.
Central banks, who are wary of past criticism, have emphasized that they would ideally see wages rise faster than inflation. That’s why RBA Governor Philip Lowe said this week that he was “ready to put up with” the price hike before “considering a rate hike next year.”
Japan is a notable exception to the surge in inflation. As a pioneer of ultra-simple monetary policy (interest rates minus 0.1% since 2016), the world’s third-largest economy is struggling to end decades of deflation and stagnation, always targeting 2% inflation. It seems unlikely that you will reach. soon.
Government data showed that core consumer prices rose slightly year-over-year in October, primarily due to higher fuel prices, but economists may have a modest rise in underlying inflation. Warned that it was expensive.
“Given human distortions and temporary blows, inflation in underlying assets is expected to peak at + 1.0% early next year,” said Tom Liamas, Japan Economist at Capital Economics. Stated.
In a recent Reuters poll, economists said 13 out of 25 central banks expect to raise interest rates at least once by the end of next year. The Bank of Japan was not among them. “The Bank of Japan lives in a world that is completely different from global trends,” said Masamichi Adachi, chief economist at UBS Securities.
The emergence of Japan as the only Keynesian in the room is the country New Prime Minister, Fumio Kishida announced a record stimulus measure worth about 56 trillion yen ($ 490 billion) on November 19. The spending package includes cash distribution to people under the age of 18 and investment in pandemic preparedness.
Some inflation factors and global supply chain issues can be tracked directly China.. It is the world’s largest exporter, accounting for almost 30% of the world’s manufacturing industry. China’s turmoil in the form of electricity, labor and transportation shortages has a spillover effect around the world.
The country’s annual inflation rate rose to 1.5% in October, the highest in 13 months from 0.7% in September. This was driven by the cost of food and fuel. Even more surprising, factory gate prices rose 13.5%. This is the fastest rate in 26 years, mainly due to energy costs.
However, the People’s Bank of China has more pressing issues to address. Wobble in the real estate sector.. The main interest rate has been 3.85% since early 2020 and is unlikely to rise given that it could have a negative impact on the housing market.
How the world’s major economies deal with inflation concerns | World economy
Source link How the world’s major economies deal with inflation concerns | World economy