Fears of resurgent inflation are dulling hopes of interest rate cuts in leading economies this year as several of the world’s most powerful central banks prepare to give their first formal verdicts on the threat posed by the Iran war.
After nearing victory over the inflationary spiral that followed Covid-19, the US Federal Reserve, European Central Bank, Bank of England, Bank of Canada and other leading institutions will meet this week under the shadow of a new global supply shock.
Economic conditions now are very different from those that drove inflation to double-digit levels in multiple regions from 2021 onwards in the wake of the pandemic and Russia’s full-scale invasion of Ukraine. Labour markets are generally weaker and monetary policy is tighter, while inflation rates have been falling for three years.