Europe is in bad shape. Betting games won’t save you from record inflation

Europe is in bad shape. Betting games won’t save you from record inflation
Europe is in bad shape. Betting games won’t save you from record inflation

https://inosmi.ru/20220921/inflyatsiya-256219457.html

Europe is in bad shape. Betting games won’t save you from record inflation

Europe is in bad shape. Betting games won’t save you from record inflation

Europe is in bad shape. Betting games won’t save you from record inflation

The West is raising interest rates to curb inflation, Yeni Şafak reports. However, this measure proved to be ineffective. It only aggravates the situation… | 09/21/2022, InoSMI

2022-09-21T00:50

2022-09-21T00:50

2022-09-21T00:50

yeni safak

economy

inflation

USA

Russia

west

a crisis

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Every step taken by Turkey in the direction of lowering interest rates met with opposition from the interest rate lobby. High interest rates were presented as a sine qua non of “low inflation” and an unshakable economic rule. However, the United States and European countries, which have taken the path of raising interest rates to reduce rising inflation under the influence of COVID-19, have not been able to achieve what they expected. No matter how much these states raise them, they are experiencing record inflation over the past 30-40 years. The sharp increase in interest rates by developed and developing countries, primarily by the central banks of the USA, Europe and the UK, did not lead to a decrease in inflation. The USA broke a 41-year-old record on inflationDespite the increase in the base interest rate by the US Federal Reserve System (FRS) since March this year by 250 basis points, inflation in America reached its highest level in 41 years and amounted to 9.1%. In March 2022, the Fed completed the asset buyback operation and began to raise interest rates: in March – by 25 basis points, in May – by 50, in June – by 75. In August, inflation in the US fell to 8.3%, while it is expected that this week the Fed will once again raise its benchmark interest rate by 75-100 basis points. Europe is doing badly A similar picture is observed in Europe. Last week, the European Central Bank (ECB) raised its benchmark interest rate by 75 basis points to 1.25%. Thus, the bank for the first time in its 24-year history went for such an increase. The ECB at its meeting in July raised rates by 50 basis points for the first time in 11 years. Despite this dramatic rise, eurozone inflation was at its all-time high of 9.1% in August. A hard winter lies ahead for Europe, which is having a tough time in terms of energy supply because of a disagreement with Russia over Ukraine. Recession and double-digit inflation warning Rising energy and food prices have sent Germany’s inflation to its highest level in 50 years . Annual inflation, which was 7.5% in July, rose to 7.9% in August, the highest since the winter of 1973-1974, when the first oil crisis occurred. On the eve of the German Central Bank (Bundesbank) announced a gradual increase in the number of signs of the entry of the German economy into recession due to the energy crisis and predicted that inflation could reach double digits in the coming months. that are being undertaken in the US and Europe. In January of this year, inflation in the UK was 5.5%, and in August it rose to 9.9%. The Bank of England, which raised its benchmark interest rate from 0.25% to 1.75%, is expected to continue raising it this week. Russia is also struggling to bring down inflation . The Central Bank of Russia, which raised the key rate from 9.5% to 20% on February 28 due to Western sanctions, as a result of a radical decision made on May 26, reduced the key rate by 900 basis points, from 20 to 11%. In June, the Bank of Russia lowered the key rate to 9.5%, in July – to 9%, in August – to 8%, and last week went down again, reducing the key rate to 7.5%. However, inflation in Russia, like the interest rate, did not decrease as quickly as it increased. In January 2022, inflation was 8.73%, while in April it rose to 17.8%. Although over the past five months, inflation in the country has slightly decreased: as of August, it remains at 14.3%. The Central Bank of Argentina, although it raised the key rate from 38 to 75%, nevertheless could not prevent inflation from rising from 51 to 78.5%. In Argentina, which raised interest rates twice in one month for the first time, inflation is at its 20-year high. The country with the second largest economy in South America is expected to reach 90% inflation by the end of the year. Turkey is notable for cutting interest rates countries. Ending 2021 with 36 percent inflation, Turkey has embarked on a policy of increasing investment, employment, manufacturing, exports and growth in a low interest rate environment. The Central Bank of Turkey, which lowered the key interest rate from 18% to 14% as a result of decisions taken one after another over the last four months of last year (September-December), seven months later, in August of this year, took another similar step and lowered the rate up to 13%. Although inflation rose to 80.21% from 48.69% in January this year, the rate of growth has slowed down significantly. Eyes on central banks Over 20 central banks are expected this week, including the US, UK, Japan, Turkey, Sweden, Switzerland, Norway, Taiwan, Egypt, Brazil, South Africa and Indonesia will decide on interest rates. This year, about 90 central banks have gone on to raise interest rates. Half of them raised rates by at least 75 basis points at a time. Thus, there was a decisive rejection of the cheap money policy that was pursued during the financial crisis of 2008. However, the tightening policy pursued by central banks by raising interest rates to fight inflation has exposed the economies of the countries concerned to the risk of recession. Experts point out that the latest moves by global central banks are pushing the global economy into stagnation. Economist and Nobel laureate Joseph Stiglitz: the exit is not in interest rates, but in investment and productionColumbia University professor and Nobel laureate in economics Joseph Stiglitz noted that central banks, which had been raising interest rates too aggressively to mitigate supply-side inflation, had driven prices up. Speaking to Bloomberg the other day, Stiglitz stressed that raising interest rates does not solve the supply-side problem. “And it may even make them worse,” the economist continued. “Because more investment is needed to solve the supply shortage problem. However, higher interest rates make that investment more difficult.” According to the economist, standard economic models that offer higher rates can cause inflation to rise. Citing the US housing market as an example, Stiglitz said landlords are fueling price increases by passing on high interest costs to tenants. “How can raising interest rates contribute to the production of more food and energy, solve supply problems? Raising rates does not address the root of the problems and carries the risk of worsening the situation,” the expert added. Author: İbrahim Acar (İbrahim Acar)

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