How Central Banks are Addressing Inflation

Inflation loves company just like misery and the US has lots of it as price increases reach 40-year highs. A unique combination of strong demand for goods, stimulus cash during the pandemic, supply chain issues, and geopolitical problems resulted in a global price surge and unprecedented strength of the USD, trading at almost 1:1 against the euro.

The UK has the highest inflation rate in the G7 at almost 10%. However, this pales in comparison to Argentina and Turkey, where predictions are for annual inflation rates of 80%.

Central banks the world over are raising rates to control the economy and slow down prices. As many as 75 countries raised their benchmark interest rates in 2022, leading to growth of credit prices across the world, according to a detailed CNN report.

US Federal Reserve

• Benchmark interest rate: 2.25-2.5%
• Current annual consumer inflation rate: 8.3%
• Start of hiking cycle: March 2022
• Last rate hike: 75 basis points in July

The Federal Reserve took a hawkish position in recent months. In July, it raised rates by 0.75 percentage points for the second time, with which the benchmark rate reached 2.25% – 2.5%. It is expected to raise the rate by another 75 basis points today.

European Central Bank

• Benchmark interest rate: 0.75%
• Inflation rate: 9.1%
• Start of hiking cycle: July 2022
• Last rate hike: 75 basis points in September

In July, the European Central Bank raised interest rates for the first time in over a decade. The increase was by 50 basis points to 0%. The rate had been negative for 9 years to bolster sluggish economic growth.

Bank of England

• Benchmark interest rate: 1.75%
• Inflation rate: 9.9%
• Start of hiking cycle: December 2021
• Last rate hike: 50 basis points in August

The Bank of England raised its rate by half a point in August, which was the biggest increase in almost three decades. With that, Britain’s benchmark rate reached 1.75%. It was the sixth hike in a row.  

People’s Bank of China

• Benchmark interest rate: 3.65%
• Current inflation rate: 2.5%
• Last rate hike: 0 basis points in September

Last month, China reduced the rate by 0.1%to 2%, in stark contrast to its Western counterparts. This was the second decrease in 2022. The bank kept the same rates in September.

This is an effort to boost the economy due to the property crisis, rising unemployment, and ongoing stagnation. Still, the move surprised investors as China is also dealing with pressure on its national currency, consumer inflation, and the risk of rising debt.

Central Bank of Argentina

• Benchmark interest rate: 75%
• Current inflation rate: 78.5%
• Start of hiking cycle: Nine increases in 2022
• Last rate hike: 550 basis points In September

In August, the inflation rate in Argentina reached a two-decade high of almost 80%. The country’s government has been taking out huge loans to fund its budget and accumulating massive debt. Recently, Argentina and the IMF reached a $45 billion debt deal.

Bank of Japan

• Benchmark interest rate: -0.1%
• Current inflation rate: 2.8%
• Last rate hike: same rates in July

The Japanese central bank predicted inflation would pass its target this year and changed its price increase forecasts for the current financial year from 1.9% to 2.3%.

However, it didn’t change its low interest rates in July and maintained its short-term goal of -0.1%. Bank Governor Haruhiko Kuroda stated he had absolutely no plans to increase rates.

Bank of Canada

• Benchmark interest rate: 3.25%
• Current inflation rate: 7%
• Start of hiking cycle: March 2022
• Last rate hike: 75 basis points in September

In Canada, price growth seems to be slowing down. In August, the annual inflation rate dropped to 7% from 7.6% in July, short of analyst forecasts of 7.3%.