Growing inflation risks add pressure on Central Banks

Inflation has been at the center stage in modern macroeconomic history since it measures the progressive increase in prices of goods and services in an economy.

Global inflation has accelerated in recent months following the reopening of economic activities after the pandemic, the improvement in labor market, the successful vaccination campaigns, the supply chain disruptions, and the higher crude oil and electricity prices.

In the United States, the Consumer Price Index jumped to 7,2% in December, its highest since 1982, in the United Kingdom inflation hit a 30-year high of 5,4%, while in Eurozone it surged to a new record high of 5,1%.

Growing inflation risks have added pressure on policymakers, with the Bank of England already raising interest rates twice to 0,50%, while European Central Bank has turned hawkish, with expectations for a rate hike at the end of the year.

Friday’s unexpectedly strong nonfarm payrolls report for January has increased the chances that the Federal Reserve could start raising interest rates by March to contain rampant inflation.

Investors are ready for more volatility in the forex market at a time central banks around the world have pledged to tighten their monetary policies by raising rates and concluding their bond-buying programs.