America, Europe find ways to deal with inflation

Inflation in the euro area is at a record high

Annual inflation in the 19 countries that use the euro rose to a record 8.1% in May, from 7.4% in April. Prices have risen for 10 consecutive months and show no sign mitigating, exacerbating the cost of living crisis and forcing European policymakers to commit to measures to cushion the impact, the New York Times reported. This development took place when the price of energy and food increased to a record due to the war between Russia and Ukraine, which continued to affect the continent’s economy.

The European Commission recently lowered its economic growth forecast to 2.7% this year, down from the 4% estimated in winter. Inflation is hitting record levels and is expected to average 6.8% this year, the committee noted. A growing number of economists are warning Europe could slip into a sharp recession or outright recession before the end of the year.

Energy costs continued to be the biggest driver of consumer and corporate prices, with a record 39.2% in May while processed foods, alcohol and tobacco rose 7%. European leaders reached a political agreement this week on an embargo on most Russian oil imports. The measure is intended to punish Russia, but economists say it will further harm European households and industry as sanctions contribute to pushing prices higher.

Germany, Europe’s largest economy, was hit the hardest, with inflation rising 8.7%. Meanwhile, France (inflation 5.8%), Spain (8.5%) and Italy (7.3%) also recorded consumer prices continue to increase in May, prompting lawmakers in These countries impose price ceilings on energy prices or offer discounts to low-income households to offset the cost of gas and diesel. For example, in Germany, from June, the government will reduce the price of gasoline at the pump station and 10 USD monthly tickets for public transport across the country.

To date, rising energy costs have had the greatest impact on the countries whose borders are closest to Russia. For example, inflation in Estonia has increased at the most shocking annual rate, 20.1%, almost double the 11% recorded in January. In Lithuania, annual inflation rose to 18.5% and in Latvia to 16.4%.

As inflation rates rise, the European Central Bank accelerates its policy response, emphasizing that the era of negative interest rates could end as early as September. At the beginning of July, the bank is expected to end its bond-buying program. large bonds and then began raising rates for the first time in more than a decade. Last week, European Central Bank President Christine Lagarde outlined the terms of a projected rate hike roadmap, signaling that interest rates would rise in July and September. European Central Bank, Philip Lane, recently revealed that the rate hike could be a quarter of a percentage point, but some policymakers say it may need to go up to half a percentage point.

The US seeks to control inflation

In the 12 months ended April, the consumer price index, which tracks the average amount Americans pay for a variety of goods and services, rose 8.3%, down slightly from the previous month, but still at a level not seen in 40 years. This is an important issue for President Joe Biden as his party faces a serious challenge in the November midterm elections. Opinion polls show rising prices are one of voters’ biggest concerns right now, and high inflation appears to be affecting the president’s approval ratings.

Before a meeting with Federal Reserve Chairman Jerome Powell, Joe Biden wrote in the Wall Street Journal, emphasizing: “First of all, the Federal Reserve has the main responsibility to control inflation.” He also agreed with the Fed that fighting inflation “is our top economic challenge right now.”

The Federal Reserve is engaged in the complex process of slowing price increases without pushing the US economy into a recession. The Fed’s primary tool in this effort is the ability of the Federal Open Market Committee (FOMC) to set benchmark interest rates that affect borrowing costs across the economy.

As a result of the COVID-19 pandemic, the US economy fell into a recession in 2020 and the Fed lowered interest rates to above zero to stimulate the economy. However, low interest rates combined with other government stimulus programs and supply shortages due to the pandemic and war in Ukraine have pushed prices higher, putting pressure on the budgets of many American consumers. In March of this year, the Fed started to raise interest rates and continued with another rate hike in early May. With the current “target” interest rate in the range of 0.75% to 1%, the Fed signaled for We see a few more rate hikes before the end of the year, possibly by half a percentage point.

However, experts warn that many of the factors contributing to price increases are beyond the control of the central bank, with many related to supply-side issues such as supply chain issues, strategic affairs in Ukraine.