In the main financial sites at a global level, only the issue of inflation and its great impact on international markets is discussed and mentioned.
June 8, 2021, | AtoZ Markets– For many experts, the CPI numbers in the world’s main economies must remain stable, or the central banks will begin to act using interest rate for this .
After experiencing the beginning of the pandemic last year, it is normal that the 2020 figures compared to this year have a strong discrepancy.
However, for most analysts the rise of these results in the main economies has been very fast, and is not associated with the internal economic stability.
According to some central banks, costs will return to rates below or close to 2% in 2022, but the current concern is whether or not to stimulate inflation in developed economies.
2021 Inflation Forecast
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.8 percent in April on a seasonally adjusted basis after rising 0.6 percent in March, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all items index increased 4.2 percent before seasonal adjustment, the largest 12-month increase since September 2008 in United Sates.
As we can see in the graph, last year’s results for inflation in the United States were in negative territory, and in April of this year they had an increase of 0.8%.
What Happens to Inflation in Europe?
Meanwhile, in April in the euro area the inflation stood at 2% after several months of negative rates of change (deflation) in 2020.
In the same period last year, the euro area and the EU registered an inflation rate of 0.3% and 0.7%, respectively, according to data published by the Eurostat.
This week the ECB will have its monetary policy meeting and this will be an issue to consider.
It should also be noted that inflation in Europe has also been boosted by commodities and their high prices.
How Does It Affect Having High Inflation?
The monetary policy of a country aims to maintain a low and stable inflation rate, and to achieve the maximum sustainable level of growth in GDP and in the employment of citizens.
When we talk about inflation, we must consider that it is not bad in itself. However, it is always necessary that it takes place under appropriate macroeconomic conditions so that it does not affect the stability of the economy.
Inflation is always under constant review by central banks because if it is too high, and the country is not growing, they will have to act using their interest rates.
How to Use Monetary Policy
When a country’s monetary policy increases interest rates, the cost of credit rises, and consumers will decrease their consumption, helping to lower inflation levels. The rising cost of money will keep prices in order.
On the other hand, if interest rates remain low, the cost of credit will fall, and consumption and demand will increase.
In my opinion, the challenge for central banks now will be to try to keep inflation under control, but without having to raise their interest rates, because in times of post-pandemic recovery be a bad thing for economies.
Think we missed something? Let us know in the comment section below.