Ubiquitous inflation
Facts:
1) The
Federal Reserve and the
IMF have been failing to predict inflation over and over again since 2020.
2) The Fed thought its interest rate would remain around zero in 2023. However, now it expects it to soar to at least 4.6% due to the
inflation growth.
3) There is a shocking rise in the dollar’s value due to the interest rate increase, which raises the cost of imports for foreign economies, pushing up the inflation level.
4) As of September 2022, the average inflation rate for countries in Europe was 10.9%, a very high benchmark.
Analysis:
According to the new work published by the IMF, there are three potential causes of the inflation increase: macroeconomic shocks,
nominal wage rise and discouraging expectations:
1) Many
macroeconomic shocks in the world, including the war in Ukraine, pushed up the value of the dollar and consequently inflation in Europe.
2) The
rise in nominal wages due to a decrease in unemployment after COVID-19 also leads to higher prices. However, the
real wages decreased, hence people’s living standards are in decline.
3)
Market expectations in Britain and the EU are discouraging due to recent events. That pushes up inflation too.
Inspired by The Economist
