Most countries around the world are experiencing rising inflation. The US, Europe and the UK, for example, are dealing with inflation of 8.2%, 9.9% and 10.1%, respectively.
To combat inflation, central banks around the world have raised interest rates, again, to levels not seen in many years. While this might help stem inflation to some extent, higher interest rates have the potential to tip economies into recession.
United Kingdom
In the UK, the Bank of England (BoE) reiterated its commitment to cutting inflation. The BoE enacted its seventh consecutive rate hike in September, which has seen interest rates rise to 2.25%. Borrowing costs are now at their highest levels since 2008, so it was perhaps unsurprising the government’s substantial and unfunded support package was met with scepticism by the public.
Europe
Europe is also facing a number of macroeconomic challenges, including the Ukraine conflict, supply chain constraints and rapidly rising energy prices. Growth has slowed across most of Europe and inflation remains high. The spike in energy prices is the driving force behind Europe’s inflation, which could exceed 10% in the coming months.
To try to reduce this, the European Central Bank (ECB) increased interest rates by 0.75% in September and are expected to go further in the months ahead. Another rate increase of 0.75% in October followed by a hike of 0.5% in December is expected. This would bring the ECB’s base rate to 2% by the end of this year.
United States
The level of inflation in the US eased for the third month in a row in September. This was mainly because of lower energy prices. With rising prices expected to moderate for the rest of the year and signs of slower growth, the Federal Reserve (Fed) might be able to pause rate hikes once it reaches its 4-4.5% target. This would be the highest level since 2007. So far, the Fed’s raised rates to 3.25%, indicating there might still be work to be done.
Asia
Asian central banks have been hiking interest rates too. The central banks of the Philippines and Indonesia both delivered a recent increase of 0.5%. The inflation picture is similar there, with countries across the continent experiencing stubbornly high levels. Inflation in key economies in the region, like India and Singapore, has reached 7.4% and 7.5%, respectively.
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