Global central banks under fire as cost of living rises

For weeks, governments and policymakers around the world have suggested that the recent spikes in consumer and energy prices are transient and that the rise in inflation will subside, once the supply disruptions. and the workforce shortages associated with the pandemic will be resolved and the global economy will restart.

But recent figures suggest that inflation could persist for some time, raising concerns about an explosive cost-of-living crisis, which could upend countries’ domestic politics and disrupt the electoral plans of ruling parties and their constituencies. leaders.

Central bankers have said increases in the prices of goods, rents, food and energy are one-off, the consequences of economies struggling to recover from the coma induced by COVID-19 lockdowns and pandemic restrictions . But new inflation data from around the world has beaten expectations, and central bankers are now being criticized for failing to act to contain the price spike.

The Bank of England stands tall

Central banks are under increasing pressure to raise interest rates, but fear acting too hastily and reversing the recovery by cutting stimulus measures. The Bank of England decided earlier this month not to raise interest rates despite its governor, Andrew Bailey, earlier declaring that bankers “will have to act and must do so if we see a risk, especially for l ‘medium-term inflation and medium-term inflation expectations. “

FILE – Pedestrians wearing face masks walk past the Bank of England in London, March 11, 2020.

Recent figures show that inflation in Britain has reached its highest level in almost a decade, with the consumer price index climbing 4.2% in October from the previous year. The Bank of England has an official inflation target of 2%. The bank’s decision not to raise its key rate, leaving it at 0.1%, has baffled financial markets and sent the pound lower in value, and inaction is still criticized by many economic commentators.

Among them is Neil Wilson of Markets.com, who says “the governor’s credibility is at stake”.

Likewise, in the United States, the Federal Reserve is under fire from rising inflation. Earlier this week, Mohamed El-Erian, chief economic adviser at Allianz and influential commentator, said he believes the US central bank is losing credibility in the face of its long-held view that inflation is transient.

“I think the Fed is losing its credibility. I argued that it is really important to restore a credible voice on inflation and this has massive institutional, political and social implications, ”he said.

El-Erian told CNBC-TV that the Federal Reserve’s stance on inflation risks undermining President Joe Biden’s economic agenda, warning policymakers should not forget that low-income people are the hardest hit affected by rising consumer prices.

In the USA

The rapidly rising cost of household living is already being felt by Americans.

FILE - Meat products at a grocery store in Roslyn, Pa., June 15, 2021.

FILE – Meat products at a grocery store in Roslyn, Pa., June 15, 2021.

According to a series of opinion polls conducted by pollster YouGov for The Economist magazine, 46% of Americans said they thought the state of the economy was “getting worse”, with just 19% saying it was “getting better.”

In the United States, the consumer price index rose 6.2% in the 12 months ending in October, the highest rate in three decades. The Americans said the rise in wages did not keep pace with the rapid rise in prices. Fifty-six percent of YouGov respondents said they had trouble getting fuel, 48% couldn’t easily pay their rent or mortgage, and 45% said they had difficulty feeding their families. .

Some Member States of the European Union are also facing a cost of living crisis.

Romania reported an annual inflation rate of 6.5% in October, the biggest increase in consumer prices among EU member states in southeastern Europe, according to Eurostat, the office EU statistics. Inflation in the euro area is 4.1%, more than double the target of the European Central Bank.

Increases considered transitory

This week, European Central Bank President Christine Lagarde acknowledged that eurozone inflation is likely to stay high longer than expected. She remained committed to the idea that price increases were likely transient, and she still expected inflation to fall below the bank’s 2% target over the medium term.

“We still see inflation moderating next year, but it will take longer to come down than expected,” she told lawmakers in the European Parliament.

Police officers check the vaccination status of visitors during a patrol at a Christmas market in Vienna, Austria, November 19, 2021. Austrian Chancellor Alexander Schallenberg said the country would enter a nationwide lockdown to contain a fourth wave of coronavirus cases.

Police officers check the vaccination status of visitors during a patrol at a Christmas market in Vienna, Austria, November 19, 2021. Austrian Chancellor Alexander Schallenberg said the country would enter a nationwide lockdown to contain a fourth wave of coronavirus cases.

Some European economists, however, question his optimism. They say the pandemic is far from over, pointing to a fourth wave causing an increase in cases across much of the continent and the prospect of a return to economically damaging retractions. Germany declared a state of emergency and Austria announced a full lockdown to begin on Monday, becoming the first European country to return to full lockdown and the first to make COVID-19 vaccination mandatory.

The coronavirus situation in Germany is so serious that confinement, including for those vaccinated, cannot be ruled out, German Health Minister Jens Spahn said on Friday.

“We are in a national emergency,” he said at a press conference.

The road to normalcy is bleak again for Europe, and economists say the impact of a fourth wave of coronavirus on household budgets is going to be significant – this at a time when the price of almost everything skyrockets.


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