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The U.S.’s robust economic recovery is inflating not only prices around the world but also the dollar’s value, adding to pressures on other nations’ central banks to raise interest rates sooner than they have planned.
On the other hand, lingering COVID infections and economic recoveries slower than hoped are pressing banks to keep rates low to nourish economic revivals.
The U.S. recovery and its attendant demand for an array of goods have expanded U.S. imports, bringing business to manufacturers around the world.
However, the booming American economy also has pushed up borrowing costs, helped drive global prices for commodities higher, accelerated global inflation rates, and crimped economic recoveries elsewhere.
Brazil’s central bank raised rates 0.75 percent earlier this month to lasso an 8-percent inflation rate. The Central Bank of the Republic of Turkey set its interest rate at 19 percent in March to tame inflation running above 16 percent.
The Central Bank of Russia has raised rates three times in recent months, now fixing them at 5.5 percent with more hikes likely, the bank has warned.
“We have kept rates low to make sure we don’t clip the wings of a recovering economy,” Russian bank governor Elvira Nabiullina said in a15 June speech to the country’s legislature.
“Now is the time to raise rates in response to changed circumstances,” she said.
Norway’s central bank has said it will raise interest rates in September to cope with inflation; its counterparts in the Czech Republic, Hungary, and South Korea also are expected to hike rates soon, the Wall Street Journal reported.
The stronger dollar also threatens economic stability in emerging markets, many of which are toting heavy debt loads denominated in dollars. These countries would have a difficult time withstanding even a short period of inflation before becoming unable to service debt.
“With all the consequences of the pandemic, the last thing these countries need right now is policy tightening” and higher rates, economist Tamara Vasiljev at Oxford Economics told the WSJ.
In contrast, the stronger dollar makes goods imported to the U.S. from manufacturing nations in Europe and Asia cheaper.
TREND FORECAST: Many central banks believe that inflation will cool as supply-chain disruptions work themselves out during a global economic recovery, the WSJ noted.
However, workers are going on strike and, whether in a union or not, job seekers are demanding more pay. And considering the worker shortages, wages will rise. Thus, the rising wages will go toward more spending which will increase product demand, which will in turn push inflation higher.