Inflation: European Central Bank raises interest rates as US Fed maintains status quo

*The Governing Council of the European Central Bank, which decides interest rate policy for the 20 countries of the Bank using the Euro currency, has increased its benchmark rate to 3.5 percent, as price spikes continue squeezing millions of consumers, households and businesses with higher bills for basic necessities of life across the world

Isola Moses | ConsumerConnect

As the economic bloc battles to contain rising inflationary trend in the member countries, the European Central Bank Thursday, June 15, 2023, again, pressed ahead with another interest rate rise.

ConsumerConnect reports the ECB’s latest move came after the United States (US) Federal Reserve somehow has taken ‘a break’ from its own string of rate  increases in the recent past.

A consumer planning personal finance 

The Governing Council of the Bank, which decides interest rate policy for the 20 countries making up.the ECB that use the Euro currency, increased its benchmark rate by a quarter of a percentage point to 3.5 percent.

The ECB said in a statement: “Inflation has been coming down but is projected to remain too high for too long.”

It was the eighth straight increase since July 2022, an unprecedentedly swift campaign to tighten the flow of credit to the economy as the bank seeks to return inflation to its target of 2% from 6.1%.

The  Bank’s decision was widely expected, and several analysts think one more quarter of a point hike is in the cards for the bank’s next meeting slated for July 27 this year.

ECB President Christine Lagarde’s remarks at a news conference Thursday would be scrutinised for clues about when rate increases might finally top out, agency report noted.

Central Banks around the world are trying to wrestle down price spikes that have been squeezing households and businesses with higher bills for basics of life, such as food and rent.

However, some are starting to diverge in their decisions to avoid plunging their economies into further trouble.

Why US Fed takes a break

It was also learnt the US Federal Reserve suspended its series of rate hikes Wednesday as it assessed the impact of higher rates on economic growth and jobs.

The Federal Reserve had left interest rates in the US unchanged for the first time since it kicked off an aggressive round of increases last year.

It takes months for rate hikes to work their way through to the economy, and a pause can be a chance to see if the medicine is working, according to report.

Nonetheless, Fed projections indicate two more rate hikes are possible this year.

Central Banks in Australia and Canada resumed rate increases last week after a pause, report stated.

In Europe, the economy however, contracted slightly in the last months of 2022 and the first three months of this year.

Two straight quarters of falling output is one definition of recession.

The Euro Area Business Cycle Dating Committee, which uses employment as well as economic growth data in determining when a recession has occurred, found no recession at its last assessment March 27 and will revisit the question in November.

On global Consumer Prices

Consumer prices started rising as the global economy bounced back from the Covid-19 pandemic and created supply chain bottlenecks, reports Irish Examiner.

Oil and natural gas prices also spiked due to Russia’s threats against Ukraine and after its February 2022 invasion. That also sent food and fertiliser prices soaring amid disruption to supplies from the warring countries, both major agricultural exporters.

Those pressures are starting to ease, but the initial burst of inflation is being reflected in higher wage demands and prices for services, even as energy prices have fallen in Europe in recent months.

Home prices in Europe started to fall in the last months of 2022, the first dip since 2015, one sign that the ECB’s policies are feeding through to the economy as mortgage costs deter homebuyers.

Kindly Share This Story