The Russian attack on Ukraine may slow global growth and raise new economic risks, but top central banks are keeping their focus trained on an inflation fight that looks set to intensify.
While Europe may be the most vulnerable to a broader economic shock from the war, the European Central Bank made clear on Thursday the region could not turn their backs on soaring inflation in the euro zone.
Calling the war a “watershed moment” that could curb growth but boost inflation, the ECB decided to stop pumping money into markets this summer – clearing the way for possible interest rate increases later this year.
“You can slice inflation any way you want and look at any core measure, it’s above target and rising. We have a 2% mandate and we’re failing it,” said one ECB policymaker, who asked not to be named.
A similar narrative was emerging in other Western countries, including the United States, as officials weigh the potential damage on their economies from the war against the persistent rise in inflation.
Growth is expected to remain above trend in major economies, allowing them to focus on inflation running far faster than their common 2% percent benchmark.
The Bank of Canada raised interest rates earlier this month.
The Bank of England and the Federal Reserve are expected to do so next week. Each is expected to follow with more increases in coming months.
Even fiscal policy officials – more sensitive to the politics of economic developments and often cheerleaders of looser central bank policies – are keenly aware of the corrosive power of run-away price increases.
Inflation “is of tremendous concern,” Treasury Secretary Janet Yellen said on Thursday. “It hits Americans hard. It makes them worry about basic pocketbook issues.”
With U.S. consumer inflation hitting a 40-year high, investors now expect the Fed to raise the target federal funds rate to a level between 1.75% and 2% by year’s end, a quarter point higher than they expected as of last week.
ASIA OUTLOOK MURKIER
The outlier among major central banks is the Bank of Japan, which is expected to maintain ultra-loose monetary policy to support a still fragile recovery even as surging energy costs push up inflation toward its 2% target.
“If crude oil and commodity prices drive up inflation while wage growth remains slow, that would hit households’ real income and corporate profits, and hurt the economy,” BOJ Governor Haruhiko Kuroda said on Tuesday.
The monetary policy path is less clear in Asia, where many economies have lagged Western counterparts in scrapping harsh pandemic restrictions.
For some central banks in the region, such as New Zealand, South Korea and Singapore, deep worries about prices and imported inflation have already set off policy tightening.
Australia’s top central banker on Friday cautioned borrowers it would be prudent to prepare for a rise in rates this year with inflation set to increase.
For most others in the region, the need to sustain a fragile recovery is likely to complicate deliberations.
Thailand’s central bank is unlikely to raise interest rates any time soon despite inflation spiking to a 13-year high, as the war’s effect to tourism and trade dent growth.
(Reporting by Howard Schneider in Washington, Balazs Koranyi in Frankfurt and Leika Kihara in Tokyo; Editing by Dan Burns, Lisa Shumaker and Raju Gopalakrishnan)
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
