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  • Home
  • News
    Bets increase on a soft landing in the U.S

    Bets increase on a soft landing in the U.S

    69% of investors believe metaverse entertainment will change social lifestyles

    69% of investors believe metaverse entertainment will change social lifestyles

    European oil companies want to follow in Chevron’s footsteps to operate in Venezuela

    European oil companies want to follow in Chevron’s footsteps to operate in Venezuela

    Amgen buys Horizon Therapeutics for US$ 25 billion

    Amgen buys Horizon Therapeutics for US$ 25 billion

    Europe prepares law to make airlines that pollute more pay higher costs

    Europe prepares law to make airlines that pollute more pay higher costs

    Why are Asian investors selling their tech stocks?

    Why are Asian investors selling their tech stocks?

    Here’s what the economy and markets will look in 2023, according to JP Morgan

    Here’s what the economy and markets will look in 2023, according to JP Morgan

    Are technology stocks coming to the end of their reign?

    Are technology stocks coming to the end of their reign?

    Amazon fined millions for manipulating algorithms in its favor

    Amazon fined millions for manipulating algorithms in its favor

  • Markets
    Bets increase on a soft landing in the U.S

    Bets increase on a soft landing in the U.S

    What are CFDs and what are their advantages?

    Getting started with CFD trading

    Goldman Sachs lands with more strength at Santander and BBVA

    Goldman Sachs lands with more strength at Santander and BBVA

    With inflation in recession, what stocks should you consider?

    With inflation in recession, what stocks should you consider?

    Should payment for order flow be maintained in the stock market?

    Should payment for order flow be maintained in the stock market?

    Why are Asian investors selling their tech stocks?

    Why are Asian investors selling their tech stocks?

    Here’s what the economy and markets will look in 2023, according to JP Morgan

    Here’s what the economy and markets will look in 2023, according to JP Morgan

    Are technology stocks coming to the end of their reign?

    Are technology stocks coming to the end of their reign?

    Inflation is starting to ease but not enough

    Inflation is starting to ease but not enough

  • Investing
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    Mercado Libre could be one of the best investments for the long term

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    Will Ford shares be profitable in 2023?

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    Some interesting options for investing in leisure and travel companies

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    Plug Power’s commitment to green hydrogen

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    Investing in Auto Trader: vehicle sales at a turning point

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  • Technology
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    Microsoft leads the ranking of the best-managed companies in 2022

    Microsoft leads the ranking of the best-managed companies in 2022

    Apple: consequences of the Foxconn conflict will continue until 2023

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    5 must-have skills to get a job in 2023

    5 must-have skills to get a job in 2023

    UK changes strategy on Internet content control

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    EU organized a party in the metaverse and nobody attended

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    The metaverse companies with the highest revenues in 2022

    The metaverse companies with the highest revenues in 2022

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    Nintendo sells 10 million Switch in 3 days and its shares rise

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    Bitcoin falls after Fed decision to raise interest rates by 0.50%

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    The future of cryptocurrencies, according to Larry Fink

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    Between two extremes: what will the price of Bitcoin be in 2023?

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    FTX crash spreads and affects BlockFi

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    EU organized a party in the metaverse and nobody attended

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    Why does The WSJ continue to question Tether’s financial health?

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    Brazilian Congress approves bill to regulate cryptocurrencies

    Brazilian Congress approves bill to regulate cryptocurrencies

INVESTOR TIMES
Home Markets
ACTUALIZADO: December 11, 2022

Inflation is starting to ease but not enough

Santiago Contreras by Santiago Contreras
12/12/2022 - 7:57
in Markets, News
Reading Time: 3 mins read
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The aggressive monetary policy applied by the Federal Reserve (Fed) of the United States, the European Central Bank (ECB) and the other issuing institutions of the world, have not yet achieved their objective of liquidating the high levels of inflation experienced by economies worldwide

Until recently, the thought of having annual inflation rates of over 10% was truly madness. The gigantic monetary expansion unleashed by the pandemic stimuli to avoid a recession during the bull run, provoked the evil we are currently suffering from.

The inflation target is still far away

In the eurozone, the annualized inflation rate fell in November from 10.6% to 10%, generating some optimism among monetary authorities. Likewise in the US, as inflation shows signs of slowing down, the Fed is expected to start slowing the pace of interest rate hikes.

By mid-month, the US central bank and the ECB, as well as the Bank of England, are likely to raise their respective benchmark rates by half a point (0.50%). This would mark the beginning of a slowdown in the pace of increases this year, which has stood at 0.75 percentage points.

Three reasons not to be so optimistic

It is true that inflation is falling globally as a result of the fall in oil and gas prices over the summer and the normalization of long-stalled supply chains

But the central banks’ target of bringing inflation levels to 2% is still far from being met. Analysts see at least three reasons to think that difficulties in achieving such targets will continue to weigh in 2023.

Shortage of workers

One is the labor shortage that has continued to strain the U.S. economy since the pandemic. Although the pricing issue has improved, recent data on the level of wages remains a concern.

Although average hourly earnings have moderated since August, the latest data from early December show that they remain still very high. Surveys show that over the last three months the annualized increase in wages was 5.1%.

Following the release of this data, U.S. stock markets immediately reacted negatively. Investors fear that the Fed will keep the pace of interest rate increases at the same level of 0.75% for a while longer.

In Europe, there is not as much pressure from labor markets, but the political sector is concerned that inflation caused by high energy prices will affect the rest of the economy and further raise the high cost of living. Workers would be forced to negotiate better wages to compensate for the drop in purchasing power.

A similar situation is being experienced in the United Kingdom where workers are demanding better wages through a series of strikes. To calm labor unrest, employers and the government will necessarily have to raise wages.

Deficit fiscal policy

The other problem in sight is fiscal policy. The U.S. Inflation Reduction Act could be effective if the Biden administration would lower the administration’s fiscal deficit. But instead it has arranged to forgive student loans.

The same is true in the Eurozone and other regions of the world that are not doing much to help their central banks cool labor markets. Energy subsidies help households lower their spending and help lower high inflation, but they take capacity out of the economy.

To finance subsidies, deficit governments will turn to taxes. It is estimated that in the European Union the net cost of taxes raised for this purpose will reach about 2 % of GDP. In Great Britain it is the same, cuts to public spending will not begin until 2025, due to the energy price cap imposed.

About two-thirds of the eurozone’s energy spending is regulated by standardized prices. This is not only costly but discourages consumers from saving energy. Barely one-fifth is targeted to the neediest sectors, as recommended by the IMF and other organizations.

Persistent inflation

The third and most worrying problem is that next year inflation will remain high and the cost of money will remain high. This year Europe has benefited from relatively stable energy prices due to the obstacles generated by China’s zero covid policy, which have limited its demand for energy.

Competition for liquefied gas (LNG) has then been weaker stabilizing prices. But China is relaxing its strict sanitary standards and the engines of its economy could soon be at 100% again.

If so, the Chinese economy will demand more energy and prices will rise again in 2023. The conflict in Ukraine is still raging, putting pressure on energy and food prices as well.

Central banks have a major challenge next year. If interest rates continue to rise, a global recession is almost certain. The world will pay a very high price to tame inflation. Instead of high prices there will be more hunger and unemployment and perhaps some unexpected black swan.

Tags: Economy EuropeEconomy United StatesGlobal inflation

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