The figures for price growth in the US that came on Thursday afternoon were the last thing the US central bank wanted. Again, price growth was even stronger than expected, showing that it has taken hold at a high level. The annual price increase is 8.2 per cent. Core inflation, where energy is taken out among other things, is a worrying 6.5 per cent. The figures emphasize that the American central bank is not succeeding in slowing down the price gallop. It is likely that price growth will continue upwards in the coming months as well. Increases the likelihood of more shock therapy The exceptionally high price increase comes despite several, sharp interest rate hikes. Today’s figures increase the likelihood of another triple interest rate hike at the next interest rate meeting. The American central bank is much more afraid of doing too little than doing too much in the fight against inflation. “My colleagues and I feel a strong obligation to bring inflation down towards the target of 2 per cent. We have both the tools and the will to execute to restore stable prices for American families and businesses. Price stability is the central bank’s responsibility. It is the bedrock of the economy. Without price stability, the economy will not work for anyone,” said central bank governor Jerome Powell when he raised interest rates for the third time in a row by 0.75 percentage points in September 2022. He did not get any traction from today’s figures. Car prices have helped to drive up price growth in the United States. Photo: JUSTIN SULLIVAN / AFP Demanding balance The International Monetary Fund IMF pointed out in a gloomy report earlier this week that both politicians and central banks around the world are now balancing on a knife’s edge, and that it is worse if the central banks tighten too little than too much . According to Handelsbanken’s chief economist Marius Gonsholt Hov, there have already been bad experiences with central banks that have reacted too little and too late to the strong price pressure. Doing too little again could trigger even tougher austerity at a later date, according to him. Marius Gonsholt Hov at Handelsbanken. Photo: Handelsbanken Painful side effects But the fixed-rate medicine of course also has a number of side effects. In the USA, interest rate hikes are referred to as putting the sick patient into a coma, in order to be able to fix it. The operation brings pain, but it is the only way to recover. The pain comes in the form of worse times for business and gradually increased unemployment. In the USA, the central bank has made it absolutely clear that the consideration of bringing down inflation outweighs the consideration of unemployment. The very worst So to the main question: what is the worst that can happen? For the US, it will be if you move into a period called “stagflation”. Then you have high price growth, at the same time as you have weak or negative growth in the economy – and high unemployment. There is something illogical in this from the point of view of economic theory; After all, prices shouldn’t rise when people have less to deal with. And there is no simple solution to the problem either: measures to counteract low growth will make inflation even higher, while measures against high inflation will make growth even lower. Tightened up sharply The last time the US was in a similar situation was in the late 70s. Then the key interest rate rose from an average of 11.2 per cent in 1979, until it peaked at 20 per cent in June 1981. This led to a huge recession from 1980-1982, and an unemployment rate of over 10 per cent. But the attack on inflation worked. From a peak of 14.8 percent in March 1980, it fell to below 3 percent in 1983. Although we are far from such interest rates, the fear is still palpable. The violent reactions in the interest rate market on Thursday underline that. Today’s price growth figures do not suggest any softening in the near future.
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