Rapid inflation is seeping into various goods & services and remains persistent. It has exposed the global economy to a possible sharp economic activities pullback, lower bond & stock values, and more expensive credit. Thus, central bankers worldwide are increasing interest rates rapidly. It is a rare moment that the intentional community has not witnessed for decades.
Various countries have installed metrics to lower the rapid price increases before they mark a lasting economic impact. Generally, inflation has undermined many developing and advanced economies from early 2021. These price hikes resulted from the strong demand for commodities that worsened due to supply shortages following the Covid-19 pandemic.
Unfortunately, most central banks worldwide remained inactive for months contemplating shipping routes unclogging and economic restoration. They thought consumer spending would normalize and supply constraints would ease. The worst unfolded soon after Russia invaded Ukraine, only to disrupt food & oil supplies and push prices higher.
Hence, global economic policymakers responded since early 2022 by levying interest hikes. At least 75 banks lifted interest rates from historically low levels. The truth is that policymakers have limited control over curbing the high energy prices. Thus, high interest rates may help slow down business and consumer demand.
The strategy would allow supply to catch up for various services & goods to manage this inflation. The European Central Bank has a meeting this week with high speculations to impose its first rate increase in ten years. In any case, the bank’s officials have signaled a possible quarter-point increase and even a more substantial move in September.