What happens if prices continue to rise? – Speech

The US price growth numbers coming out on Thursday afternoon were the last thing the US central bank wanted.

Once again, price growth was stronger than expected, which indicates that it has solidified at a high level.

Annual price increase of 8.2 percent. Core inflation, where energy is taken among other things, is alarming at 6.5 percent.

The numbers confirm that the Americans The central bank did not succeed in slowing the wheel of prices. Price growth is likely to continue rising in the coming months as well.

Increases the likelihood of further shock therapy

The exceptionally high price increase comes despite several sharp interest rate hikes. Today’s numbers increase the likelihood of a three-fold increase in interest rates at the next rate meeting.

The US central bank is more afraid of Doing too little, rather than too much, in the fight against inflation.

“My colleagues and I feel a strong duty to bring inflation down toward the 2 percent target. We have both the tools and the will to implement to restore stable prices to American families and businesses. Price stability is the responsibility of the central bank. It is the bedrock of the economy,” Fed Chair Jerome Powell said when he raised interest rates. For the third time in a row by 0.75 percentage points in September 2022, without price stability.

Didn’t get any help from numbers today.

balance request

The International Monetary Fund noted the International Monetary Fund in a grim report earlier this week that both politicians and central banks around the world are now balancing on a knife edge, and that it would be worse if central banks tightened young From to Much to me.

According to Marius Gunsholt Hof, chief economist at Handelsbanken, there have already been bad people out there. Experiences with central banks that responded too little and too late to strong price pressures.

Doing a little more effort again can lead to tougher austerity later on, he says.

Painful side effects

But it is normal for interest rate medicine to have a number of side effects.

In the USA, high interest rates are referred to as putting the patient into a coma, until they can fix it. The operation causes pain, but it is the only way to recover.

The pain comes in the form of worse times for business and gradually increasing unemployment. In the US, the central bank has made it clear that thinking about reducing inflation outweighs considering unemployment.

the worst

So for the main question: What’s the worst that could happen?

For the United States, it would be so if it moved into a period called stagflation. Then you have high price growth, at the same time you have weak or negative economic growth – and high unemployment.

There is something illogical about this from the point of view of economic theory. After all, prices shouldn’t go up when people have little to deal with. There is no simple solution to this problem either: measures to counter low growth will make inflation higher, while measures against high inflation will make growth lower.

clamp

The last time the United States was in a similar situation was in the late 1970s. then roseThe interest rate was rising from 11.2 percent on average in 1979, until it peaked at 20 percent in June 1981.

It led to a massive recession from 1980 to 1982, and an unemployment rate of over 10 percent. But the attack on inflation succeeded. From a peak of 14.8 percent in March 1980, it has fallen to less than 3 percent in 1983.

Even though we are far from these interest rates, the fear is still palpable. The backlash in the interest rate market on Thursday confirms this.

Today’s price growth figures do not indicate any decline in the near future.