The energy crisis, fears of recession, galloping prices and a corona virus that continues to wreak havoc around the globe: the world is going through a time of transition, and businesses, politicians and central banks are faced with huge challenges. On the one hand they have to combat inflation, but on the other it is important not to stifle the already weakening economy even more. On top of this comes the search for a solution to the Ukraine conflict in order to ease geopolitical tensions and bring skyrocketing gas prices – a key contributor to the current high level of inflation – back down again.
Prices are rising sharply at the moment, particularly in the USA and Europe. According to provisional calculations, in August the inflation rate in the eurozone climbed above the 9% mark for the first time since the single currency was first introduced. A look at core inflation, though, reveals that higher electricity and gas costs are not solely to blame. This variable, which excludes the volatile prices for energy and unprocessed foods, also increased markedly, up from 5.1% in July to 5.5% now, demonstrating that inflation is causing ever greater ripples in the economy. Economists reckon that the inflation rate could even reach double figures over the coming months. Although Switzerland is still displaying greater monetary stability than the eurozone or the USA, here too prices are rising. According to the Swiss Federal Office for Statistics, the rate came to 3.5% in August, continuing an upward trend that has now been going on for more than a year.
Central banks have already taken some countermeasures against rampant inflation. Across the world, the currency guardians have been pursuing a tighter monetary policy this year. In other words, after a long phase of low or even negative interest rates, they are now turning the screw again. The US Federal Reserve (Fed) was the first of the major central banks to do so, having in March already adjusted its key monetary policy rate upwards for the first time since 2018. Four further steps have since been taken, with still more expected. The European Central Bank and Swiss National Bank, too, are now shutting off the money supply. In the middle of June, for instance, the SNB raised its base rate sharply by 0.50 percentage points to -0.25%. This was the first time in 15 years that the monetary authorities had tightened the interest rate screw again. In the fight against inflation, the ECB then heralded a turnaround in policy in July by hiking rates for the first time in over eleven years.
In light of the latest inflation figures, pressure is growing on the ECB to respond with a further rise at its next meeting on 8 September (after we go to press). The money markets are already speculating on a very large step. Investors put the likelihood that the ECB will increase the base rate by 0.75 percentage points at around 80%. Before the most recent inflation figures had been published, the chances of such a steep rise had been estimated at “only” 50%. The decision by ECB boss Christine Lagarde will also have an impact on the SNB’s monetary policy assessment, scheduled for 22 September. According to media reports, the SNB would like to initiate a return to normality then and bid farewell to the age of negative interest rates after more than seven years. This means they would have to take at least one hike of 0.25 percentage points. By contrast, a further rise of 75 basis points is expected from the US central bank at its upcoming meeting on 20/21 September. At the annual central bank symposium in Jackson Hole, Fed boss Jerome Powell had actually signalled a further significant tightening of monetary policy.
Source: Statista, Refinitiv
