November 24, 2022
  • November 24, 2022
  • Home
  • Central Banks
  • Inflation is a global problem, here’s how central banks are dealing with it

Inflation is a global problem, here’s how central banks are dealing with it

By on September 21, 2022 0


New York
CNN Business

Like misery, inflation loves company. And as price increases persist near 40-year highs, the U.S. plenty.

A perfect storm of stimulus cash during the pandemic, strong demand for goods, geopolitical chaos and supply chain issues have led to soaring prices globally.

In Britain, inflation is just under 10%, the highest in the G7. In Turkey and Argentina, annual inflation rates are expected to reach 80%.

The Federal Reserve announces its next interest rate decision later on Wednesday, but central banks around the world are also raising rates in an effort to slow the economy and bring prices down to earth. At least 75 countries have raised their benchmark interest rates over the past year, raising the price of credit around the world. Here’s a look at what some of them do.

Current annual consumer inflation rate: 8.3%

Reference interest rate: 2.25-2.5%

Last rate hike: 75 basis points in July

Start of the hiking cycle: March 2022

The Federal Reserve is the most important central bank in the world – the US dollar has been the world’s main reserve currency for more than 70 years. This is why meetings of the Federal Open Market Committee, where monetary policy is adopted, are so closely watched around the world.

In recent months, the Fed has taken a hawkish stance. In July, it instituted its second consecutive 0.75 percentage point increase in interest rates, bringing its benchmark rate to a range of 2.25% to 2.5%. The bank is largely expected to institute another 75 basis point hike on Wednesday.

Inflation rate: 9.9%

Reference interest rate: 1.75%

Last rate hike: 50 basis points in August

Start of the hiking cycle: December 2021

The bank launched its biggest interest rate hike in 27 years in August, the first half-point hike since the bank was made independent of the UK government in 1997. It was the sixth hike consecutively and took the UK benchmark rate at 1.75%.

The BoE’s September policy decision was due to be released last week, but was delayed for a week due to the death of Queen Elizabeth II. The bank is expected to rise again at its postponed meeting on Thursday, with inflation remaining stubbornly higher and the pound hovering near a 37-year low against the US dollar.

Inflation rate: 9.1%

Reference interest rate: 0.75%

Last rate hike: 75 basis points in September

Start of the hiking cycle: July 2022

The eurozone raised interest rates for the first time in 11 years in July. The ECB raised interest rates by 50 basis points to 0%. Yes, that’s right, 0%. The rate had been negative since 2014 in an effort to spur weak economic growth.

Core inflation reached 8.6% in June, The ECB needs to raise rates and say that further hikes would be appropriate. This month, the bank continued its tightening policy, increasing by 75 basis points. The ECB covers 19 countries, many with very different economic conditions. Some analysts fear that heavily indebted countries such as Italy and Greece will suffer significantly from the increases.

Current inflation rate: 2.5%

Reference interest rate: 3.65%

Last rate hike: 0 basis points in September

Start of hiking cycle: n/a

Unlike its Western counterparts, China actually cut interest rates by a tenth of a percentage point from 2.1% to 2% last month, the second cut this year. This month, the bank kept its rates at the same level.

The bank is trying to stimulate the economy due to the current stagnation, rising unemployment and a real estate crisis. But investors were still surprised by the move, as China also faces the risk of rising debt, consumer inflation and pressure on the yuan.

A man walks past the People's Bank of China (PBOC) building on July 20, 2022 in Beijing, China.

Current inflation rate: 2.8%

Reference interest rate: -0.1%

Latest rate hike: Rates remained unchanged in July

Start of hiking cycle: n/a

Economic growth slowed in Japan this summer, dashing hopes that pandemic-era economies would help support the faltering economy. The Bank of Japan also forecast inflation to exceed its target this year and raised its price inflation forecast for the year ending March 2023 to 2.3% from 1.9%.

But the BOJ kept its lowest interest rates unchanged in July and maintained its short-term target of -0.1%. BOJ Governor Haruhiko Kuroda said he had “absolutely no plans” to raise interest rates.

“The economy is recovering from the pandemic. Deteriorating terms of trade in Japan are also leading to an outflow of income,” Kuroda told a news conference. “As such, we need to continue our easy policy to ensure that rising corporate earnings lead to moderate wage and price growth,” he said.

Current inflation rate: 78.5%

Reference interest rate: 75%

Last rate hike: 550 basis points in September

Beginning of hiking cycle: Nine increases this year, but ongoing cycle

Argentina raised its policy rate in September by around 550 basis points to 75%. This increase follows a 950 basis point increase in August. The country is grappling with a runaway inflation rate that hit a 20-year high of nearly 80% in August.

For years, the Argentine government borrowed heavily to fund its budget, racking up massive debt. The country recently reached a $45 billion debt deal with the International Monetary Fund.

The price of bread in Argentina has taken an inflationary hit due to fluctuating commodity prices.

Current inflation rate: 7%

Reference interest rate: 3.25%

Last rate hike: 75 basis points in September

Start of the hiking cycle: March 2022

Price growth appears to be slowing in Canada. The country’s annual inflation rate slowed to 7% in August, below analysts’ forecast of 7.3% and down from July’s 7.6%. But even though inflation appears to be falling from its peaks, it remains well above the Bank of Canada‘s 2% target.