Inflation knows no borders
Inflation weighed on household finances in the United States, but Americans are not alone. Rising prices have wreaked havoc on governments around the world and sent central bankers scrambling to stop it. Policymakers have instituted aggressive rate hikes to tighten monetary policy in their jurisdictions in ways not seen in decades.
The Bank of England just announced a 0.75% hike in interest rates Thursday raising the rate to 3% from 2.25%. It’s the biggest rate hike since 1989 and has warned of “very difficult” outlook for the economy, with the economy registering inflation of 10.1% in September. The economy is already in a recession that could last two years.
The European Central Bank raised rates by the same amount at the end of October to 1.5%, its highest level since 2009. The ECB has not raised rates this aggressively since the start of the euro zone in 1999. Inflation accelerated to 10.7% across the economic bloc in October.
The United States started earlier than its trading partners to fight runaway inflation, starting with a series of rate hikes in March of this year. While starting slowly with a 25 basis point hike, the first in two years, the Fed announced on Wednesday its fourth consecutive increase of 75 basis points.
Inflation in the United States has slowly declined since peaking at 9.1% in June, it is still at 8.2%. So far, the United States has been able to avoid recession thanks to the economy expanding in the third quarter after two consecutive declines.