2023-06-26 02:28:16
The world’s central banks have raced at an extraordinary pace over the past year to calm inflation, but those measures have not borne fruit so far, according to the Wall Street Journal.
The newspaper said in a report, Sunday, that economic growth is still mostly slow, and prices are strong pressures in rich countries, despite the sharp rise in interest rates.
The newspaper said that the reason for the increase in prices and the failure to decline inflation lies in a large part in the strange effects of the Covid-19 epidemic, and the time it takes to increase interest rates at the central bank to curb economic activity. In addition, historically tight labor markets have boosted wage gains and consumer spending.
The newspaper pointed out that the unusual nature of the recession caused by the epidemic in 2020 and the subsequent recovery led to weakening the natural effects of higher interest rates.
She stated that in 2020 and 2021, the United States and other governments provided trillions of dollars in financial assistance to families who were suffering during the epidemic. Meanwhile, lower central bank interest rates allowed businesses and consumers to cover lower borrowing costs.
Households and businesses have continued to spend heavily in recent months, and families have used their savings. Companies also continued hiring to make up for the epidemic-related labor shortage, according to the newspaper.
She explained that cars and real estate sectors are traditionally sensitive to interest rates.
A pandemic-related shortage of semiconductor chips has limited the supply of cars for sale, prompting eager buyers to pay higher prices for available cars, according to the newspaper.
She noted that although home construction in the United States declined last year, construction employment increased over the past twelve months. The reasons for the job growth were bottlenecks in the supply chain that lengthened the time needed to finish homes.
She also pointed out that the construction of family homes has rebounded in the United States recently, thanks to historically low numbers of homes for sale. And the fact that many families refinanced during the pandemic and kept mortgage rates low was a good reason why people kept their homes for sale.
According to the newspaper, an increase in the Federal Reserve rate usually forces indebted consumers and companies to rein in spending because they have to pay more to service their loans. But consumers have not gone too far in debt over the past two years, as household debt service payments accounted for 9.6 percent of disposable personal income during the first quarter, below the lowest levels recorded between 1980 and the start of the pandemic in March 2020.
And government spending continued to boost growth, cushioning economic shocks that proved less catastrophic than expected, according to the newspaper.
While Europe’s energy crisis helped push the region into recession over the winter, the region avoided the deep downturn that some analysts had predicted. European governments have pledged up to $850 billion to support spending.
Lower oil and natural gas prices this year have boosted economic growth by pumping money into consumers’ pockets, boosting confidence and relieving pressure on government budgets.
The price of a barrel of oil has fallen by almost half in the past year, from regarding $120 to less than $70, which is lower than its level before Russia’s invasion of Ukraine in 2022, which led to higher prices.
The reopening of the Chinese economy also supported activity in many of the country’s trading partners, while weak domestic growth prompted Beijing, this June, to introduce new stimulus.
In the United States, fiscal policy provided more attractiveness to the economy this year. Federal funding continues to flow from President Joe Biden’s roughly $1 trillion infrastructure package approved in 2021 and from two pieces of legislation signed last year that provide hundreds of billions of dollars to boost renewable energy production and semiconductor manufacturing.
The newspaper pointed out that it takes time for high interest rates to affect the economy and calm growth and inflation.
The Bank of England raised interest rates for the first time from nearly zero in December 2021, while the Federal Reserve and the European Central Bank raised interest rates in March 2022 and July 2022, respectively.
1687783383
#havent #central #bank #plans #succeeded #reducing #inflation
