This week, central banks made it clear that the battle against inflation is far from over.
The Federal Reserve paused rate hikes last week to take time to assess the effects of their previous increases. However, the Fed Chair Jay Powell’s testimony on Wednesday and Thursday this week admitted that the fight against rising prices was not yet won, acknowledging that inflation was still surpassing the desired level. He further recognised that there was a significant gap to be bridged before reaching the target of two percent, signalling that subject to economic data, the Federal open market committee see further hikes going forward.
The UK is increasingly looking like the outlier with stubbornly high inflation. Many have placed the blame on the Bank of England (BoE)’s slow start to increase rates and the UK’s departure from the European Union which has led to increased import costs. This week, hotter than expected CPI data pushed BoE policymakers to hike interest rates by 50 basis points rather than the 25 initially expected. The move marked the 13th consecutive hike since December 2021, taking interest rates to 5% – the highest since 2008.