Sunday, January 29, 2023

Central bankers struggle to contain market inflation fears

Central bankers and government officials around the world are scrambling to convince both financial markets and the general public that the recent spike in price inflation is temporary, and does not indicate a period of long price increases. But many doubt his analysis.

Inflation is marked by an increase in the prices of all kinds of different goods and services in an economy. While some inflation is normal, high rates of inflation make it difficult for people to afford essentials such as cars, food, clothing and shelter.

Usually, people blame the government for rising prices, which makes managing inflation an important task for politicians. For example, in the US, evidence of rising prices is currently being used by the Republican Party to criticize President Joe Biden, a Democrat, for his handling of the economy.

Most of the world, except for much of Asia, has seen a significant increase in the cost of living since the coronavirus pandemic began in early 2020. The Food Price Index maintained by the United Nations Food and Agriculture Organization is up 32.8% from the previous. Year. The cost of all types of fuel – gasoline, natural gas and coal – is rising globally.

People wait with their empty canisters to buy low-cost cooking gas sold by the Petrobras Oil Tanker Union at the Villa Vintem Favela in Rio de Janeiro, Brazil October 28, 2021.

On Thursday, data was released showing that Spain is experiencing an annual inflation rate of 5.5%, and Germany is seeing 4.6% inflation. On Friday, a report covering the entire euro area will be released, and economists expect it to show a regional 3.7% rate of inflation, the highest since the global financial crisis in 2008.

Worldwide, countries including Russia, Nigeria, Brazil and Turkey have reported inflation above – sometimes above – 4%. In the United States, the Consumer Price Index maintained by the Bureau of Labor Statistics shows that overall prices rose 5.4% in the 12 months ending September.

Europe stays the course

Despite all this, most central bankers say the price hike is a fleeting response to the reopening of the global economy after a massive shutdown in the early stages of the pandemic.

“Demand is exceeding supply as the economy reopens,” European Central Bank President Christine Lagarde said in a virtual press conference on Thursday. “While the current phase of high inflation will last longer than originally expected, we expect it to decline over the course of the next year.”

“We actually looked and tested our analysis of the drivers of inflation very deeply, and we are confident that our anticipation and our analysis are indeed correct,” he said.

European Central Bank President Christine Lagarde Speaks During A Press Conference After The Governing Council Meeting In Frankfurt On October 28, 2021.

European Central Bank President Christine Lagarde speaks during a press conference after the Governing Council meeting in Frankfurt on October 28, 2021.

Lagarde’s comments come after the European Central Bank indicated it would keep interest rates at their current very low levels through next year.

This goes against the advice of some high-profile economists, such as former US Treasury Secretary Larry Summers, who has called on the Federal Reserve and other central banks to tighten monetary policy, relaxed in response to the pandemic, to avoid had gone. A situation in which inflation gets out of control. Government bonds are currently trading at prices that suggest markets believe a hike in interest rates is inevitable.

Higher interest rates make borrowing more expensive and disrupt economic activity, slowing demand for goods and services. With low demand, prices tend to fall or moderate.

Bank of Japan unaffiliated

In Japan, where inflation affecting other countries has not increased, Bank of Japan chief Haruhiko Kuroda said he does not expect that to change. “I believe the kind of inflation acceleration risk that has been a cause for concern overseas is extremely limited in Japan,” indicating that he is also critical of the bank’s efforts to keep the economy going indefinitely. hopes.

However, not all central bankers are calm about inflation risks. Earlier this month, New Zealand’s central bank raised interest rates for the first time in seven years. In the United Kingdom, the Bank of England has indicated it will raise rates to keep inflation under control.

Around the world, bond markets are setting prices that suggest that market participants do not believe most central banks will stick to their promise that rates will remain at current lows for long.

situation in america

Federal Reserve Board Chairman Jerome Powell acknowledged last week that the factors driving inflation, and the global supply chain crisis in particular, have not eased as quickly as the Fed expected.

“The risks are now clearly to longer and more persistent odds and thus higher inflation,” he said at a virtual event organized by the Reserve Bank of South Africa. “We now see high inflation and the odds lasting well into next year.”

File - Federal Reserve Chairman Jerome Powell Speaks On Capitol Hill In Washington, September 30, 2021.

FILE – Federal Reserve Chairman Jerome Powell speaks on Capitol Hill in Washington, September 30, 2021.

He said that while the Fed will begin to “dilute” a bond-buying program designed to push more cash into the US economy during the pandemic, he expects interest rates to rise any time soon. does not do.

“I would say that our policy is well positioned to manage a range of appreciable outcomes,” he said. “I think it’s time to lower and I don’t think it’s time to raise rates.”

Joseph E., a Senior Fellow at the Peterson Institute for International Economics. Gagnon said he thinks the Fed has the right to keep interest rates on hold for the time being, and those who are warning that the US is headed for a 1970s-style out-of-control price hike should be taken as a history lesson. the wanted.

“Everybody remembers the 70s, when nobody knew what inflation was going to be and every time inflation went up, people expected more and it got out of control,” he said.

However, he added, “If you look at what caused it, it took five years for the Fed not to fully respond to inflation, not to talk about inflation, not to do its job, before that happened. Others.” In words, it was a gradual one. The process took years. And the Fed won’t let that happen. If inflation doesn’t come down next year, they’re going to raise rates.”


This article is republished from – Voa News – Read the – original article.

Nation World News Desk
Nation World News Desk
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