Charting the Global Economy: ECB Boosts Rates; Fed, BOE on Deck

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(Bloomberg) — The European Central Bank raised interest rates to the highest in more than a decade and said it is making strides getting policy in a better position to quash inflation that remains excessive.

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Policymakers, who hiked rates by 75 basis points for a second meeting, dropped a prior reference to increases continuing for “several meetings,” saying simply that they expect borrowing costs to be raised “further.” 

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While many investors interpreted the change in language as an indication the ECB is considering easing up a bit on the policy brakes, more hawkish members see the need for a continued aggressive stance, especially in light of inflation that surprised to the upside in Germany, Italy and France this month.

Price pressures are also persistent and elevated in the US and UK as central bankers gather at their respective policy meetings this coming week. The Federal Reserve and Bank of England are both expected to raise key lending rates by 75 basis points.

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Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:

Europe

The ECB doubled its key interest rate to the highest level in more than a decade and signaled it’s making progress in its battle with record inflation, just as the likelihood of a recession mounts. Citing “substantial progress in withdrawing monetary policy accommodation,” the ECB brought the deposit rate, which was below zero as recently as July, to 1.5%. “Inflation remains far too high and will stay above the target for an extended period,” it said in a statement.

German inflation unexpectedly accelerated this month, following a trend already seen in France and Italy that will increase pressure on the ECB to raise interest rates even as a recession looms. Consumer prices in Europe’s largest economy rose 11.6% from a year earlier. Comparable rates were last recorded in the early 1950s in West Germany.

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UK wages fell at the sharpest pace since the aftermath of the global financial crisis, underscoring the tightening pressure on households struggling with a squeeze on the cost of living. Wages adjusted for inflation fell 2.6% in the year through April, the most since a 3.3% decline in the period from 2010 to 2011 that coincided with the recession more than a decade ago.

US

The US economy rebounded following two quarterly contractions thanks in part to resilient consumers and businesses, though inflation and higher interest rates leave growth vulnerable in the coming months.

Two key inflation gauges closely monitored by the Fed posted firm increases in reports Friday, underscoring persistent pressures that will keep the central bank on a course of steep interest-rate hikes. The employment cost index, a broad gauge of wages and benefits, rose 1.2% in the third quarter, while one of the Fed’s preferred inflation gauges accelerated in September.

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Asia

China’s broad fiscal deficit hit an all-time high in the first nine months of the year as Covid outbreaks and a housing market slump continue to erode government income. The deficit in the budgets for all levels of government was 7.16 trillion yuan ($980 billion), according to Bloomberg calculations based on data released by the Ministry of Finance on Tuesday.

Australia’s annual headline inflation accelerated to a 32-year high in the third quarter, validating the Reserve Bank’s rapid policy tightening and prompting a jump in government bond yields. The consumer price index advanced 7.3%, the strongest reading since 1990 when the RBA hiked so aggressively it tipped the economy into recession.

South Korea’s economic growth decelerated last quarter in response to slowing exports and a weakening currency, a result that’s unlikely to prevent the central bank from further policy tightening.

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Emerging Markets

Brazil’s consumer prices rose more than expected in mid-October after declines in the previous two readings, indicating the effects from President Jair Bolsonaro’s tax cuts may be waning ahead of Sunday’s runoff vote. 

Farmers in Brazil, the world’s largest soybean exporter, are gambling on La Nina to boost profits. Growers are halting sales now and betting that a third consecutive year of La Nina may cause drought losses in Brazil’s far south and in Argentina, boosting futures prices, an analyst said.

World

Profits and losses aren’t usually thought of as a consideration for central banks, but rapidly mounting red ink at the Fed and many peers risks becoming more than just an accounting oddity. Coinciding with the current outbreak in inflation, that could spur calls to rein in monetary policy makers’ independence, or limit what steps they can take in the next crisis.

The ECB led policymakers increasing interest rates this week. Canada slowed its pace of rate hikes, while officials in Brazil, Japan and Hungary left their benchmark rates unchanged. Colombia’s central bank raised borrowing costs to a more than two-decade high.

—With assistance from Andrew Rosati, Swati Pandey, Reade Pickert, Liza Tetley, Tarso Veloso, Fran Wang, Alexander Weber, Enda Curran, Tatiana Freitas, Sam Kim, John Liu, Carolynn Look, Jonnelle Marte and Jana Randow.