global economy: Charting the global economy: ECB raises rates; Fed, BOE on deck


The European Central Bank raised interest rates to their highest in more than a decade and said it was making progress to ensure that policy is better placed to stifle inflation which remains excessive.

Policymakers, who raised rates by 75 basis points for a second meeting, dropped an earlier reference to increases continuing for “several meetings”, saying simply that they expect the costs of borrowing increase “again”.

While many investors interpreted the change in language as an indication that the ECB was considering easing policy brakes a bit, more hawkish members see the need for a continued aggressive stance, especially in light of inflation. which surprised on the upside in Germany, Italy and France this month.

Price pressures are also persistent and elevated in the US and UK as central bankers gather in their respective policy meetings this coming week. The Federal Reserve and the Bank of England are both expected to raise their key rates by 75 basis points.

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

Europe

The ECB doubled its key interest rate to the highest level in more than a decade and signaled that it was making progress in its fight against record inflation, just as the likelihood of a recession increases. Citing “substantial progress in the withdrawal of accommodative monetary policy”, the ECB cut the deposit rate, which was below zero last July, to 1.5%. “Inflation remains far too high and will remain above target for an extended period,” he said in a statement.

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German inflation unexpectedly accelerated this month, following a trend already seen in France and Italy that will increase pressure on the ECB to raise interest rates even as a recession looms. Consumer prices in Europe’s largest economy rose 11.6% from a year earlier. Comparable rates were last recorded in the early 1950s in West Germany.

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UK wages have fallen at the fastest pace since the aftermath of the global financial crisis, underscoring growing pressure on households struggling with a squeeze on the cost of living. Inflation-adjusted wages fell 2.6% in the year to April, the most since a 3.3% drop in the period from 2010 to 2011 that coincided with the recession over ten years ago.

WE

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The U.S. economy has rebounded from two quarterly contractions, driven in part by resilient consumers and businesses, although inflation and rising interest rates make growth vulnerable over the coming months.

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Two key inflation indicators closely watched by the Fed posted firm increases in their reports on Friday, underscoring lingering pressures that will keep the central bank on a path of sharp interest rate hikes. The Employment Cost Index, a broad gauge of wages and benefits, rose 1.2% in the third quarter, while one of the Fed’s favorite inflation indicators accelerated in September.

Asia

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China’s large budget deficit hit a record high in the first nine months of the year as Covid outbreaks and a housing market slump continue to erode government revenue. The deficit in budgets for all levels of government was 7.16 trillion yuan ($980 billion), according to Bloomberg calculations based on data released by the Ministry of Finance on Tuesday.

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Australia’s annual headline inflation accelerated to a 32-year high in the third quarter, validating the Reserve Bank’s rapid policy tightening and pushing government bond yields higher. The consumer price index rose 7.3%, the highest reading since 1990, when the RBA rose so aggressively it pushed the economy into recession.

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South Korea’s economic growth slowed in the last quarter in response to slowing exports and a weaker currency, a result that is unlikely to prevent the central bank from further tightening policy.

Emerging Markets

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Consumer prices in Brazil rose more than expected in mid-October after declines in the previous two readings, indicating that the effects of President Jair Bolsonaro’s tax cuts may fade before Sunday’s second round.

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Farmers in Brazil, the world’s largest soybean exporter, are betting on La Nina to boost their profits. Growers are now halting sales and betting a third straight year of La Nina could lead to drought-induced losses in far southern Brazil and Argentina, pushing futures prices higher, an analyst said.

World

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Profits and losses aren’t usually seen as a consideration for central banks, but the rapidly rising red ink at the Fed and many peers risks becoming more than just an accounting quirk. Coinciding with the current surge in inflation, this could provide an incentive to restrict the independence of monetary policy makers or limit the actions they can take in the next crisis.

Monitoring rate

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The ECB led policymakers to raise interest rates this week. Canada slowed its pace of rate hikes, while officials in Brazil, Japan and Hungary left their benchmark rates unchanged. Colombia’s central bank has raised borrowing costs to a record high in more than two decades.


(With help from Andrew Rosati, Swati Pandey, Reade Pickert, Liza Tetley, Tarso Veloso, Fran Wang, Alexander Weber, Enda Curran, Tatiana Freitas, Sam Kim, John Liu, Carolynn Look, Jonnelle Marte and Jana Randow)

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