The inflation level in America for the month of December is 6,5%. Inflationary pressures continue to ease in the world's largest economy. This trend gives hope that prices will stabilize further, both in the US and in the rest of the world.
The jump of 6,5% compared to December 2020 is the smallest jump in annual prices in the last few months. Prices also fell 0,1% from the previous month, the first month-on-month decline. The price of gasoline fell the most, easing the pressure on the already strained budgets of American households.
The prices of real estate, furniture and new cars continue to jump and this is a reason for further concern. That part of the economy is still struggling with the disrupted procurement system caused by the covid-19 virus. It is important that we see an easing of price pressures in that segment as well, so that the American and then the global economy can return to the path of sustainable growth.
This information has a positive effect on financial flows because it is hoped that prices will be contained in other parts of the world as well. The chart illustrates the level of inflation in the US over the last 50 years, that is, since the 4,5s when prices ran rampant for a full decade. The illustration clearly shows that the level is still three times higher than desirable, so there is no room for permanent relief. The American central bankers hold their next session at the end of January and expectations are that they will raise the reference interest rate from the current 5% to XNUMX%. Previous moves have borne fruit, but the problem is still there, so the expected increase is inevitable.
Europe is trotting again and the 2% rate is too low to cool rising prices. The European Central Bank will raise rates by half a percent two more times in the first quarter of 2023. The Old Continent is caught between wild prices and a shrinking economy caused by the war in Ukraine. Any rapid rise in the benchmark interest rate curbs prices, but risks a deep recession and high unemployment. That gap is widening due to the political cacophony within the European Union, which is unable to make difficult decisions. That is why this year will be economically difficult for Europe with no prospect of significant economic growth.
In the UK, the situation is even worse and further interest rate hikes are expected. The English have announced that they will go from the current 3,5% to 4,25% by the summer. The economy is in a difficult situation and in 2023 this island country will most likely be in recession. Further increases in interest rates will only reduce investment and thus contribute to further economic decline. In addition to these developments, the consequences of Brexit are icing on the cake in these difficult times.
Inflation in India and China shows signs of easing. These two populous countries are the foundation of the Asian economy and in the last few decades have become important global players. The corona virus is still raging in China, creating economic problems, so full economic growth is not expected in this communist country in the next few months. Once that is over, this economic giant will increase production and investment again, creating additional inflationary pressures.
We enter the new year with a little more optimism than a few months ago. The risk that the world will fall into an inflationary spiral like 50 years ago is lower than six months ago. The reactions of the central banks, although timid, are nevertheless slightly proactive, so further easing of prices is expected. It is important that they hold on this time until inflation returns to the desired annual level of a few percent. There is room for optimism, but with a lot of caution. The world is still in a tricky economic position and I worry that this news is only temporary.
(fejsbucenje.com)
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