daniel chigunwe
Inflation was already a serious problem thanks to the bottlenecks in the global supply chain caused by the Covid-19 pandemic.
But following Russia’s military operation in f Ukraine, and the effect on oil and gas prices, inflationary pressures now look a whole lot worse.
The big question is how central banks will respond. Raised inflation demands higher interest rates, but this risks compounding the global economic damage likely to be caused by the Western sanctions against Russia.
The Bank of England has been slightly ahead of the curve on tightening monetary policy, having raised the policy rate of interest twice in the last couple of months to reach 0,5 percent and also ending its quantitative easing (QE) programme for increasing the money supply back in December.
The Fed’s QE programme is only coming to an end now, while it has yet to raise interest rates. So with both the Fed and Bank of England about to make their latest monthly decisions, what can we expect?
The story so far
UK consumer price inflation currently stands at 5,5 percent, more than twice the Bank of England’s 2 percent inflation target, and it is expected to peak at 7 percent in April or even higher if there is a sustained surge in energy prices. US inflation, meanwhile, is already nudging 8 percent. Financial markets currently expect the Bank of England’s Monetary Policy Committee (MPC) to raise the policy rate of interest to 0,75 percent on March 17 en route to a peak of 2 percent a year from now, where it is expected to remain until the end of 2023.
The US equivalent rate is at 0,25 percent. It is likely to be increased at the latest meeting for the first time in this cycle by 0,25 or 0,5 points, before possibly heading towards 2 percent by year end. – Reuters
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