“Sure, if consumer spending and business investment slumps, then core inflation will eventually fall, but only as economies drop into recession. Even then, the major economies may enter a slump in production and a rise in unemployment this year, but still have inflation rates well above the levels of two years ago – the worst of all possible worlds.”
Three of the major central banks met and raised their policy interest rates yet again in the so-called ‘fight against inflation’. Interest-rate levels are now at 15-year highs. But the financial markets took the comments of the central bankers as signalling that their policies were working and inflation was falling. And it would fall sufficiently for the central banks to stop raising rates soon and so avoid an economic slump.
This is wishful thinking. The bank chiefs made much of the apparently less worse levels of economic activity in recent real GDP data. But this again is wishful thinking or white-washing.
The IMF is now predicting no slump this year and raised its growth forecasts (slightly). It now reckons global growth in 2023 will be 2.9% from a previous forecast of 2.7%, but that’s still well below the 3.4% the IMF estimated for 2022. And the new forecast for…
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DAMIJAN blog 