As in the United States, policymakers in other countries have been caught off guard by persistently high inflation. Price increases were expected to subside as economies recovered from the pandemic, but soaring energy and food prices continued to drive up inflation around the world.
After Russia invaded Ukraine, inflation forecasts were torn up and reset higher given rising commodity prices. The war has raised fears about the stability of Russia’s energy supplies, which are crucial for Europe, and has disrupted food production, increasing the risk of a global hunger crisis. Meanwhile, supply chains remain strained by pandemic-induced disruptions, and demand for some goods is still higher than production can support.
High inflation is widespread: In the United States, the euro zone and other so-called advanced economies, 60% of countries have annual inflation rates above 5%, according to the Bank for International Settlements, a bank for central banks. It’s the largest share since the 1980s and a serious problem for central banks, which typically target 2% inflation. In emerging economies, more than half of countries have inflation rates above 7%, the bank said. For now, China and Japan are notable exceptions.
“We may be on the cusp of a new inflationary era,” Agustín Carstens, the bank’s director, said last week. “The forces driving high inflation could persist for some time.”
After central banks in the United States and Europe have tried for more than a decade to raise inflation to their targets and keep it stable, policymakers are suddenly struggling to get it under control. Energy and food prices are often volatile, but what worries central bankers is that price rises could spill over to other goods and services, followed by workers’ demands for wages higher to meet the rising cost of living.
In Britain, inflation is at its highest level for three decades. Economists polled by Bloomberg expect data released on Wednesday to show prices in March rose 6.7% from a year earlier. The Bank of England has already hiked interest rates three times since December to bring them back to pre-pandemic levels, amid growing evidence that businesses are responding to rising prices with higher wages .
In the eurozone, the annual inflation rate jumped to 7.5% in March, from 5.9% the previous month. Rising energy prices are the main driver of inflation there, with far fewer signs of significant wage increases. But the European Central Bank set in motion a plan to end its massive bond-buying program to pave the way for interest rate hikes as “inflation became more widespread and more persistent “, according to the minutes of his last report. political meeting. Policy makers will meet again this week.
Even in Japan, which has struggled with very low or negative inflation rates for decades, there is a sign that higher prices are reaching its shores. Last month, a government survey of consumer one-year inflation expectations hit 2.7%, the highest since 2014.