Amid the relentless rise in US inflation to a four-decade high of 7.5%, the European Commission on Thursday raised inflation expectations for this year.
The Brussels-based institution expects inflation to reach 3.5% this year against its November forecast of 2.2%. Rising energy prices are expected to put a “longer drag” on the European economy and drive up inflation, according to the European Commission’s latest growth outlook.
Earlier this year, economists said high inflation would continue to haunt the global economy this year. In a Reuters poll, economists deviated from their earlier view that the surge in inflation, driven by pandemic-induced supply constraints, was transitory. The survey was conducted in January and more than 500 economists participated. Along with downgrading their outlook for global growth on expectations of a slowdown in demand, economists also said central banks would raise rates faster than previously expected. According to the survey, growth is expected to slow to 3.6% and 3.2% in 2023 and 2024, respectively.
What’s happening in the United States?
In the United States, the Department of Labor said Thursday that inflation rose to its highest level in January at 7.5% since February 1982. Consumers felt the bite of rising prices from a number of household items such as food, vehicles, appliances and electricity. There has also been a sharp increase in housing rentals. Along with the large influx of federal aid, supply bottlenecks, labor shortages, ultra-low interest rates and robust consumer spending have contributed to higher inflation.
While most economists believe inflation will ease as businesses adjust and demand normalizes, there’s still no clear indication as to when supply rumblings will ease enough to reduce price pressure. The relentless rise in prices prompted the US Federal Reserve to consider raising rates sooner than previously expected.
“With wages, commodity prices and supply chain strains, the Fed will have to react aggressively,” James Knightley, chief international economist at ING, told The Wall Street Journal.
Europe is experiencing an energy crisis that is pushing electricity prices to record highs, fueling inflation and increasing household bills. Electricity prices in Germany and France jumped nearly 11% and 7.7%, respectively, amid increased demand from European utilities during freezing winters, Bloomberg reported last year.
Amid soaring energy prices, the European Commission raised inflation forecasts to 3.5% in the euro zone.
Although output in the commission’s 27 member states is expected to surpass pre-pandemic levels by the end of this year, eurozone inflation surging to record highs in the fourth quarter had clouded the economic outlook. for the coming years. month.
“Several headwinds have chilled the European economy this winter: the rapid spread of Omicron, a further rise in inflation driven by soaring energy prices, and continued supply chain disruptions,” he said. said the Financial Times, quoting Paolo Gentiloni, European Commissioner for the Economy.
Once those headwinds pass, growth should resume in the spring, Gentiloni said.
Russian inflation at 6-year high
Inflation in Russia hit a six-year high in January at 8.73%, driven by higher prices for fruits, vegetables, building materials and electronics, Bloomberg reported citing data from the Federal Statistical Service.
Price gains in the week ended February 4 were higher at 0.29% than 0.18% the previous week, pushing the annual rate to 8.8% as on February 4. The country’s central bank is expected to raise rates after Friday’s meeting to a base of 425. Last year’s point (bp) hike failed to reverse the trend in price growth.
“The peak of inflation is probably not over yet,” Bloomberg said, quoting Locko-Invest economist Dmitry Polevoy. “Most likely it will come in March-April.”
Maintaining its inflation projection at 5.3% for the current financial year, the Reserve Bank of India said on Thursday that it expects inflation based on the consumer price index to come down. below 4.5% in fiscal 2023. Although global crude oil prices are likely to skip school, inflation is expected to decline on the back of better harvests, government-side interventions offer and a good monsoon.
India’s retail inflation in December hit a five-month high of 5.59% from 4.91% in November on the back of higher food prices, PTI reported.
(Edited by : Thomas Abraham)