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Central banks: red alert on the inflation front

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L’inflation remains at the center of central bankers’ concerns. While the latest data coming in from United States, confirmed prices rising to 7% in December, even from the Old Continent the signs are anything but encouraging. To rekindle the spotlight on the high price is the last one economic bulletin of the ECB, released today, which emphasizes that inflation “will remain over 2% for most of 2022”.

The latest data, those of November, indicate a rise of 4.9%. “The cause is mainly to be found in the sharp rise in the price of fuel, gas and electricity,” they say from Frankfurt.

More than half of the overall inflation recorded in November is attributable to the energy component. Furthermore, demand continues to exceed supply which, in some sectors, is limited. The consequences are particularly evident in the prices of durable goods and consumer services that have benefited from the recent reopening.

The base effects linked to the non-compliance of the VAT reduction in Germany continue to contribute to the higher inflation, but only until the end of 2021.

“There is uncertainty about the time needed to resolve these aspects – reads the bulletin – In the course of 2022, however, energy prices should stabilize, the trend in consumption should normalize and the pressures on prices deriving from bottlenecks on the of the global offer diminish ”.

FED alert: “inflation is too high”

Meanwhile, from the United States, December data showed that Consumer prices rose 7% year-on-year, in line with analysts’ expectations and at the highest levels since the 1980s. The last time inflation hit 7% was 1982. The core price index, excluding food and energy and the one monitored by the Fed, rose by 0.6% in December, accelerating from + 0.5% in November. On an annual basis, the core index increased by 5.5%, to a 31-year high.

This trend puts the Fed on alert. For the Fed vice president-nominated, Lael Brainard, “Inflation is too high. Our monetary policy is geared towards reducing inflation to 2% while maintaining a recovery that includes the whole world. This is our most difficult task ”, reads the anticipations of his speech tomorrow in a hearing in the Senate. “Today the economy is making positive progress, but the pandemic continues to pose challenges. Our priority is to protect what we have earned and to support a full recovery ”.

According to the MPS analysts, the US data would confirm the expectations of a first Fed rate hike as early as March as argued by several Fed members. First of all Bullard, one of the most interventionist members of the board, who has upped the ante by stating that this year may well need to be 4 elevations, while Brainard, in the speech prepared for her hearing today before the Senate Banking Committee, said that the main task for the Fed is to bring inflation back to 2%. Finally Daly (non-voting) and Harker (non-voting) joined the chorus of those who are in favor of three raises (or more if necessary).

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