Rate hikes brought forward, but end point still low

There has been a hawkish shift among many of the world’s central banks over recent weeks as inflation has continued to surprise on the upside. In this Global Central Bank Watch, we assess the reasons for that shift and what they imply for the policy outlook. In some cases, central banks have reacted more strongly to near-term price pressures than we had expected, causing us to bring forward our projected interest rate hikes in several economies. However, we generally do not expect rates to peak at higher levels than we previously assumed and maintain the view that real rates will be negative for several years to come in the major advanced economies.

Jennifer McKeown Head of Global Economics Service
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14 October 2021

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Surge in gas prices adds to near term price pressure

In this Update, we answer six key questions about the surge in natural gas prices. The key point is that it will keep inflation in DMs and many EMs above central bank targets for a few months longer than we had previously assumed. Governments are already preparing to limit the economic damage and central banks are likely to look through this temporary spike in inflation. But this comes at a time when a host of shortages are already pushing up prices and adds to the upside risks to our inflation and interest rate forecasts.

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The effects of supply shortages

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August’s global manufacturing PMIs brought more evidence of a slowdown in the sector. Growth was always going to fall back as activity approached more normal levels, but supply shortages are also playing a role. There is early evidence that the adverse effects of these shortages may have peaked: indices of suppliers’ delivery times and input prices have stopped rising, although they remain at very high levels.

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