Charting Global Economy: Central Banks Intensify Inflation Fight

(Bloomberg) -- The Bank of England became the first Group of Seven central bank to raise interest rates since the pandemic, and Federal Reserve officials signaled they favor a faster-than-expected pace of hikes next year -- both underscoring stepped-up efforts to contain inflation. 

At the same time, the European Central Bank is taking a more gradual approach as they stick to a view that inflationary pressures are transitory.

Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:

U.S.

Federal Reserve officials intensified their battle against the hottest inflation in a generation by shifting to end their asset-buying program earlier and signaling they favor raising interest rates in 2022 at a faster pace than expected. The Fed said it will double the pace at which it’s scaling back bond purchases, and projections showed officials expect three quarter-point increases in the benchmark federal funds rate will be appropriate next year.

Prices paid to U.S. producers posted a record annual increase of almost 10% in November, a surge that will sustain a pipeline of inflationary pressures well into 2022.

Europe

The Bank of England unexpectedly raised interest rates for the first time in three years, setting aside concerns over a surge in coronavirus infections to tackle the highest inflation in more than a decade. Norway kept up its own tightening effort on Thursday with its second increase this year.

The European Central Bank temporarily boosted regular monthly bond buying for half a year to smooth the exit from pandemic stimulus as President Christine Lagarde unveiled forecasts showing a strong economic rebound along with an outlook for faster inflation. 

U.K. companies added to payrolls in November at a record pace and unemployment fell, figures that are almost certain to fuel concerns at the Bank of England that unsustainable inflation pressures are building in the labor market. 

Asia

China’s economy took a knock last month from an ongoing property market slump and sporadic Covid outbreaks, prompting economists to warn that recent easing measures may not be enough to stabilize growth.

Emerging Markets

Saudi Arabia boosted its revenue forecast for next year, with higher oil prices and production volumes poised to deliver the first budget surplus in eight years and the fastest economic growth since 2011. Officials expect a sharp rebound in the Saudi economy, with growth forecast at 2.9% this year and 7.4% in 2022.

The Bank of Russia delivered its second 100 basis-point hike in interest rates this year and warned that monetary tightening isn’t over yet as a raft of factors from labor shortages to geopolitical tensions complicate its fight with inflation.

World

The Covid years are littered with predictions that didn’t work out. For anyone looking ahead into 2022, that should be enough to give pause. Most forecasters, including Bloomberg Economics, have as their base case a robust recovery with cooling prices and a shift away from emergency monetary-policy settings. What could go wrong? Plenty.

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