Opinions

Is inflation cooling down?

Following the onslaught of the COVID-19 pandemic and the invasion of Ukraine, inflation has been one of the biggest problems that global populations have been facing. The costs of food items and utility bills have sky-rocketed, impacting livelihoods and those who were already struggling with lower incomes. Throughout the past months, inflation has been persistent, reaching unprecedented levels, forcing central banks to increase interest rates to slow it down.

As the US consumer price index drops by 0.5% from 8.2% to 7.7%, hopes have kindled that inflation could be slowing down. Following this news of a lower-than-expected inflation rate in October, stock markets have reacted positively. Shares on the London exchange also made positive inroads following this development. Wall Street registered its best day since April 2020, with the S&P 500 index closing 5.5% higher and Nasdaq increasing by 7.4%.

This lower-than-expected inflation rate can potentially lead to a less aggressive recession in 2023. A more stable economic landscape can also increase government debt, driving bonds higher. Another positive factor is that with inflation cooling, there will be less need for interest rates to increase, reducing the risks of a long and painful recession. Interest rates that are lower would apply less pressure on businesses and families, impacting the property market in a smaller manner. The increased interest rates dilute the spending power of those who have mortgages and make it more difficult for those intending to buy a property. Increased interest rates also make access to funds more restricted for businesses, creating difficulties for cash-tight organisations.

Considering that the inflation within the United States and United Kingdom is quite similar, it is being anticipated that the same easing will follow in Britain. This promotes a sense of optimism considering that the central bank of the UK forecasted the longest recession on record.

Time will tell whether this development means that inflation is in fact cooling down and if world economies will stabilise. As supply chains across the world become more predictable, one will need to monitor the effects of the war taking place in Ukraine. The prolonging of the conflict can only add to the instability that the world is facing.

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