Central banks intensify their tightening

A man buys consumer goods in a supermarket in Bangkok. (Photo: Pornprom Satrabhaya)

More and more central banks around the world are deploying greater political firepower as they seek to combat relentless inflationary pressures.

Half-percentage-point increases in interest rates are becoming more common, as seen in India and Australia this week. Next week, US Federal Reserve officials are expected to raise rates by 50 basis points, with data showing inflation again at a four-decade high.

The European Central Bank, however, is taking a more measured approach, at least in the short term. Amid weak economic activity, officials indicated this week that they would raise rates by a quarter point in July.

Here are some of the graphics that have appeared on Bloomberg this week on the latest developments in the global economy:

World

India and Australia both raised interest rates by half a point this week, joining more than 50 central banks that have raised borrowing costs by at least such an increase in one go. This year. Chile, Poland and Peru – which were already part of this club – have also increased again. Meanwhile, Russia went the other way, lowering rates to where they were before the invasion of Ukraine.

The global economy will pay a “high price” for the war in Ukraine, which includes weaker growth, higher inflation and potentially lasting damage to supply chains, the Organization for Economic Co-operation and Development has said ( OECD). The organization cut its outlook for global growth this year to 3% from the 4.5% it forecast in December and doubled its inflation projection to nearly 9% for its 38 member countries. In 2023, he expects growth to slow to 2.8%.

Three of the key supply-side factors driving current global inflation levels have already reversed, meaning relief could be on the horizon for buyers around the world.

WE

US inflation accelerated to a new 40-year high in May, indicating that price pressures are taking root in the economy and shaking consumer confidence. The government’s latest inflation figures will likely push the Federal Reserve to extend an aggressive series of interest rate hikes into the fall.

For the first time in two months, the Port of Los Angeles expects inbound container volumes to exceed year-ago levels. It’s too early to tell if this is a hiccup or the start of a bigger wave of goods from Asia, but those numbers will be watched closely as the busiest U.S. turnstile for trade approaches the critical moment.

Gasoline hit US$5 a gallon or more in more than a dozen US states per week during the peak summer travel season as fuel supplies remain tight. At this rate, JPMorgan Chase & Co.’s forecast of 6.2 gallons of gasoline by August looks well within reach.

Europe

The European Central Bank has pledged to raise interest rates by a quarter of a point next month and opened the door to a bigger hike in the fall as it faces record inflation. With new forecasts signaling a faster trajectory for Eurozone prices than previously thought, it will cease large-scale asset purchases on July 1.

German factory orders fell unexpectedly in April as severe shutdowns in China put pressure on global supply chains, adding to the disruption caused by Russia’s invasion of Ukraine.

Russian efforts to rewire trade flows and circumvent sanctions for the war in Ukraine cannot compensate for the collapse in imports that is crippling its economy. A striking result so far: For the first time, neighboring Belarus, which Russia used to stage the invasion, in April overtook Germany – an economy more than 60 times larger – by value imports to Russia, according to a Bloomberg analysis of the latest data.

Asia

Bank of Japan Governor Haruhiko Kuroda pointed to some positive changes that suggest progress is being made towards his stable inflation target while clarifying that policy tightening is still not an option at this time. Multiple data sets show rising inflation expectations and greater tolerance for price hikes among households, the governor said in a speech Monday.

Retail price inflation in Thailand accelerated in May to its highest level in nearly 14 years, a level that could test the central bank’s resolve to meet borrowing costs. Consumer prices rose 7.1% year on year, from 4.7% a month ago, official data showed on Monday.

Emerging Markets

Brazilian analysts raised their inflation expectations for this year and next, before the central bank meets to discuss an extension of its aggressive cycle of interest rate hikes. Consumer prices will hit 8.89% in December, according to a central bank survey released on Monday, higher than the last forecast of 7.89% on May 2.

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