Central banks may jump start, then slow pace of interest rate hikes: QNB report – The Peninsula Qatar

Central banks may jump start, then slow pace of interest rate hikes: QNB report – The Peninsula Qatar

Doha: Consumer price inflation in the US, UK and Euro area is the highest it has been since the early 1990s and may still rise further in the next few months. That is likely to continue to generate uncomfortable headlines for policymakers at the Bank of England (BoE) US Federal Reserve (Fed) and European Central Bank (ECB).

Policy stimulus in response to the global pandemic has been substantial over the past two years. In addition to fiscal stimulus from governments, central banks provided monetary stimulus via both interest rate cuts and asset purchases. Such extensive policy support was necessary to prevent a much deeper and longer recession. Indeed, it helped major advanced economies recover strongly in 2021.

The unprecedented nature of both the pandemic and emergency policy stimulus meant that the impact on the economy was uncertain. As it happened, stimulus cheques sent to households in the US, and furlough schemes across all three major economies, were particularly effective at supporting incomes and consumer demand. Demand being stronger than supply has pushed up on consumer prices (CPI), driving inflation in major advanced economies.

Another factor pushing up on inflation is the recent rise in energy prices. Energy demand was supported by policy stimulus