Central banks, more concerned about inflation than GDP

Russia’s attack on Ukraine could slow global growth and raise new economic risks, but major central banks are focused on a fight against inflation that appears to be intensifying as prices soar.

While Europe may be the most vulnerable to a more widespread economic shock, the European Central Bank (ECB) has made it clear that the region cannot turn its back on rising inflation.

Calling the war a “watershed moment” that could slow growth but boost inflation, the ECB has agreed to stop pumping money into markets this summer to pave the way for possible interest rate hikes later this year. the first in more than a decade.

“You can dissect inflation any way you want and look at any basic measure – it’s above target and rising. We have a 2% mandate and we are not meeting it,” said an ECB monetary policy official, who asked not to be identified.

A similar narrative emerged in other Western countries, including the United States, as officials weighed the war’s potential damage to their economies against persistently advancing inflation.

Growth is expected to remain above trend in the major economies, allowing them to focus on inflation much higher than their common 2 percent benchmark.

The Bank of Canada raised interest rates this month and the Bank of England and the Federal Reserve (Fed) are expected to do so this week, each following further increases in funding costs in the coming months.

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