The threat facing the global economy — including the Fed’s role in it — is expected to dominate the conversation next week as economists and government officials convene in Washington for the annual meeting of the International Monetary Fund and World Bank.

In a speech at Georgetown University on Thursday, Kristalina Georgieva, the managing director of the I.M.F., offered a grim assessment of the world economy and the tightrope that central banks are walking.

“Not tightening enough would cause inflation to become de-anchored and entrenched — which would require future interest rates to be much higher and more sustained, causing massive harm on growth and massive harm on people,” Ms. Georgieva said. “On the other hand, tightening monetary policy too much and too fast — and doing so in a synchronized manner across countries — could push many economies into prolonged recession.”

Noting that inflation remains stubbornly high and broad-based, she added: “Central banks have to continue to respond.”

The World Bank warned last month that simultaneous interest-rate increases around the world could trigger a global recession next year, causing financial crises in developing economies. It urged central banks in advanced economies to be mindful of the cross-border “spillover effects.”

“To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production,” David Malpass, the World Bank president, said.

Trade and Development Report said.

So far, major central banks have shown little appetite for stopping their inflation-busting campaigns. The Fed, which has made five rate increases this year, has signaled that it plans to raise borrowing costs even higher. Most officials expect to increase rates by at least another 1.25 percentage points this year, taking the policy rate to a range of 4.25 to 4.5 percent from the current 3 to 3.25 percent.

Even economies that are facing a pronounced slowdown have been lifting borrowing costs. The European Central Bank raised rates three-quarters of a point last month, even though the continent is approaching a dark winter of slowing growth and crushing energy costs.

according to the World Bank. Food costs in particular have driven millions further into extreme poverty, exacerbating hunger and malnutrition. As the dollar surge makes a range of imports pricier for emerging markets, that situation could worsen, even as the possibility of financial upheaval increases.

“Low-income developing countries in particular face serious risks from food insecurity and debt distress,” Ngozi Okonjo-Iweala, director-general of the World Trade Organization, said during a news conference this week.

In Africa, officials have been urging the I.M.F. and Group of 20 nations to provide more emergency assistance and debt relief amid inflation and rising interest rates.

“This unprecedented shock further destabilizes the weakest economies and makes their need for liquidity even more pressing, to mitigate the effects of widespread inflation and to support the most vulnerable households and social strata, especially young people and women,” Macky Sall, chairman of the African Union, told leaders at the United Nations General Assembly in September.

To be sure, central bankers in big developed economies like the United States are aware that they are barreling over other economies with their policies. And although they are focused on domestic goals, a severe weakening abroad could pave the way for less aggressive policy because of its implications for their own economic outlooks.

Waning demand from abroad could ease pressure on supply chains and reduce prices. If central bankers decide that such a chain reaction is likely to weigh on their own business activity and inflation, it may give them more room to slow their policy changes.

“The global tightening cycle is something that the Fed has to take into account,” said Megan Greene, global chief economist for the Kroll consulting firm. “They’re interested in what is going on in the rest of the world, inasmuch as it affects their ability to achieve their targets.”

his statement.

But many global economic officials — including those at the Fed — remain focused on very high inflation. Investors expect them to make another large rate increase when they meet on Nov. 1-2.

“We’re very attentive” to international spillovers to both emerging markets and advanced economies, Lisa D. Cook, a Fed governor, said during a question-and-answer session on Thursday. “But our mandate is domestic. So we’re very focused on inflation as it evolves in this country.”

Raghuram Rajan, a former head of India’s central bank and now an economist at the University of Chicago, has in the past pushed the Fed to take foreign conditions into account as it sets policy. He still thinks that measures like bond-buying should be pursued with an eye on global spillovers.

But amid high inflation, he said, central banks are required to pay attention to their own mandates to achieve price stability — even if that makes for a stronger dollar, weaker currencies and more pain abroad.

“The basic problem is that the world of monetary policy dances to the Fed’s tune,” Mr. Rajan said, later adding: “This is a problem with no easy solutions.”

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Bank Of England Raises Rates But Avoids Bolder Hike Like Fed

By Associated Press
September 22, 2022

Surging inflation is a worry for central banks because it saps economic growth by eroding people’s purchasing power.

The Bank of England raised its key interest rate Thursday by another half-percentage point to the highest level in 14 years, but despite facing inflation that outpaces other major economies, it avoided more aggressive hikes made by the U.S. Federal Reserve and other central banks.

It is the Bank of England’s seventh straight move to increase borrowing costs as rising food and energy prices fuel a cost-of-living crisis that is considered the worst in a generation. Despite facing a slumping currency, tight labor market and inflation near its highest level in four decades, officials held off on acting more boldly as they predicted a second consecutive drop in economic output this quarter, an informal definition of recession.

The bank matched its half-point increase last month — the biggest in 27 years — to bring its benchmark rate to 2.25%. The decision was delayed for a week as the United Kingdom mourned Queen Elizabeth II and comes after new Prime Minister Liz Truss’ government unveiled a massive relief package aimed at helping consumers and businesses cope with skyrocketing energy bills.

The new measures have eased uncertainty over energy costs and are “likely to limit significantly further increases” in consumer prices, the bank’s policymakers said. They expected inflation — now at 9.9% — to peak at 11% in October, lower than previously forecast.

“Nevertheless, energy bills will still go up and, combined with the indirect effects of higher energy costs, inflation is expected to remain above 10% over the following few months, before starting to fall back,” the monetary policy committee said.

The bank signaled it is prepared to respond more forcefully at its November meeting if needed. Its decision comes during a busy week for central bank action marked by much more aggressive moves to bring down soaring consumer prices.

The U.S. Federal Reserve hiked rates Wednesday by three-quarters of a point for the third consecutive time and forecast that more large increases were ahead. Also Thursday, the Swiss central bank enacted its biggest-ever hike to its key interest rate.

Three of the British bank’s nine committee members wanted a similar three-quarter-point raise but were outvoted by five who preferred a half-point and one who voted for a quarter-point.

The decision “suggests the Bank of England is concerned about the U.K.’s economic deteriorating outlook amid the looming threat of recession,” said Victoria Scholar, head of investment at interactive investor. “The timid increase will do little to stem the slide in sterling but may avoid inadvertently inducing unnecessary pain for the economy which is already grappling with slowing demand and deteriorating confidence.”

Surging inflation is a worry for central banks because it saps economic growth by eroding people’s purchasing power. Raising interest rates — the traditional tool to combat inflation — reduces demand and therefore prices by making it more expensive to borrow money for big purchases like cars and homes.

Inflation in the United Kingdom hit 9.9% in August, close to its highest level since 1982 and five times higher than the Bank of England’s 2% target. The British pound is at its weakest against the dollar in 37 years, contributing to imported inflation.

To ease the crunch, Truss’ government announced it would cap energy bills for households and businesses that have soared as Russia’s war in Ukraine drives up the price of natural gas needed for heating.

The Treasury is expected to publish a “mini-budget” Friday with more economic stimulus measures, and the bank said it won’t be able to assess how they will affect inflation until its November meeting..

The Bank of England expects gross domestic product to fall by 0.1% in the third quarter, below its August projection of 0.4% growth. That would be a second quarterly decline after official estimates showed output fell by 0.1% in the previous three-month period.

The weakness partly reflects a smaller-than-expected rebound after an extra June holiday to celebrate the queen’s 70 years on the throne and the impact of another public holiday Monday for her funeral, officials said.

The bank avoided pressure to go bigger even as other banks around the world take aggressive action against inflation fueled by the global economy’s recovery from the COVID-19 pandemic and then the war in Ukraine.

This month, Sweden’s central bank raised its key interest rate by a full percentage point, while the European Central Bank delivered its largest-ever rate increase with a three-quarter point hike for the 19 countries that use the euro currency.

But British policymakers signaled they will “respond forcefully, as necessary” if there are signs that inflationary pressure is more persistent than expected, “including from stronger demand.”

The bank said it’s also moving ahead with plans to trim its bond holdings built up under a stimulus program, selling off 80 billion pounds ($90 billion) worth of assets over the next year to bring its portfolio down to 758 billion pounds.

Additional reporting by The Associated Press.

Source: newsy.com

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Federal Reserve Attacks Inflation With Another Big Hike, Expects More

The central bank raised its key short-term rate by a substantial three-quarters of a point for the third consecutive time.

Intensifying its fight against high inflation, the Federal Reserve raised its key interest rate Wednesday by a substantial three-quarters of a point for a third straight time and signaled more large rate hikes to come — an aggressive pace that will heighten the risk of an eventual recession.

The Fed’s move boosted its benchmark short-term rate, which affects many consumer and business loans, to a range of 3% to 3.25%, the highest level since early 2008.

The officials also forecast that they will further raise their benchmark rate to roughly 4.4% by year’s end, a full percentage point higher than they had forecast as recently as June. And they expect to raise the rate further next year, to about 4.6%. That would be the highest level since 2007.

On Wall Street, stock prices fell and bond yields rose in response to the Fed’s projection of further steep rate hikes ahead.

The central bank’s action Wednesday followed a government report last week that showed high costs spreading more broadly through the economy, with price spikes for rents and other services worsening even though some previous drivers of inflation, such as gas prices, have eased. By raising borrowing rates, the Fed makes it costlier to take out a mortgage or an auto or business loan. Consumers and businesses then presumably borrow and spend less, cooling the economy and slowing inflation.

Fed officials have said they’re seeking a “soft landing,” by which they would manage to slow growth enough to tame inflation but not so much as to trigger a recession. Yet economists increasingly say they think the Fed’s steep rate hikes will lead, over time, to job cuts, rising unemployment and a full-blown recession late this year or early next year.

In their updated economic forecasts, the Fed’s policymakers project that economic growth will remain weak for the next few years, with rising unemployment. It expects the jobless rate to reach 4.4% by the end of 2023, up from its current level of 3.7%. Historically, economists say, any time the unemployment rate has risen by a half-point over several months, a recession has always followed.

Fed officials now see the economy expanding just 0.2% this year, sharply lower than its forecast of 1.7% growth just three months ago. And it expects sluggish growth below 2% from 2023 through 2025.

And even with the steep rate hikes the Fed foresees, it still expects core inflation — which excludes the volatile food and gas categories — to be 3.1% at the end of next year, well above its 2% target.

Chair Jerome Powell acknowledged in a speech last month that the Fed’s moves will “bring some pain” to households and businesses. And he added that the central bank’s commitment to bringing inflation back down to its 2% target was “unconditional.”

Falling gas prices have slightly lowered headline inflation, which was a still-painful 8.3% in August compared with a year earlier. Declining gas prices might have contributed to a recent rise in President Joe Biden’s public approval ratings, which Democrats hope will boost their prospects in the November midterm elections.

Short-term rates at a level the Fed is now envisioning would make a recession likelier next year by sharply raising the costs of mortgages, car loans and business loans. The economy hasn’t seen rates as high as the Fed is projecting since before the 2008 financial crisis. Last week, the average fixed mortgage rate topped 6%, its highest point in 14 years. Credit card borrowing costs have reached their highest level since 1996, according to Bankrate.com.

Inflation now appears increasingly fueled by higher wages and by consumers’ steady desire to spend and less by the supply shortages that had bedeviled the economy during the pandemic recession. On Sunday, though, President Biden said on CBS’ “60 Minutes” that he believed a soft landing for the economy was still possible, suggesting that his administration’s recent energy and health care legislation would lower prices for pharmaceuticals and health care.

Some economists are beginning to express concern that the Fed’s rapid rate hikes — the fastest since the early 1980s — will cause more economic damage than necessary to tame inflation. Mike Konczal, an economist at the Roosevelt Institute, noted that the economy is already slowing and that wage increases – a key driver of inflation — are levelling off and by some measures even declining a bit.

Surveys also show that Americans are expecting inflation to ease significantly over the next five years. That is an important trend because inflation expectations can become self-fulfilling: If people expect inflation to ease, some will feel less pressure to accelerate their purchases. Less spending would then help moderate price increases.

Konczal said there is a case to be made for the Fed to slow its rate hikes over the next two meetings.

“Given the cooling that’s coming,” he said, “you don’t want to rush into this.”

The Fed’s rapid rate hikes mirror steps that other major central banks are taking, contributing to concerns about a potential global recession. The European Central Bank last week raised its benchmark rate by three-quarters of a percentage point. The Bank of England, the Reserve Bank of Australia and the Bank of Canada have all carried out hefty rate increases in recent weeks.

And in China, the world’s second-largest economy, growth is already suffering from the government’s repeated COVID lockdowns. If recession sweeps through most large economies, that could derail the U.S. economy, too.

Even at the Fed’s accelerated pace of rate hikes, some economists — and some Fed officials — argue that they have yet to raise rates to a level that would actually restrict borrowing and spending and slow growth.

Many economists sound convinced that widespread layoffs will be necessary to slow rising prices. Research published earlier this month under the auspices of the Brookings Institution concluded that unemployment might have to go as high as 7.5% to get inflation back to the Fed’s 2% target.

Only a downturn that harsh would reduce wage growth and consumer spending enough to cool inflation, according to the research, by Johns Hopkins University economist Laurence Ball and two economists at the International Monetary Fund.

Additional reporting by The Associated Press.

Source: newsy.com

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Shock Waves Hit the Global Economy, Posing Grave Risk to Europe

Russia’s invasion of Ukraine and the continuing effects of the pandemic have hobbled countries around the globe, but the relentless series of crises has hit Europe the hardest, causing the steepest jump in energy prices, some of the highest inflation rates and the biggest risk of recession.

The fallout from the war is menacing the continent with what some fear could become its most challenging economic and financial crisis in decades.

While growth is slowing worldwide, “in Europe it’s altogether more serious because it’s driven by a more fundamental deterioration,” said Neil Shearing, group chief economist at Capital Economics. Real incomes and living standards are falling, he added. “Europe and Britain are just worse off.”

eightfold increase in natural gas prices since the war began presents a historic threat to Europe’s industrial might, living standards, and social peace and cohesion. Plans for factory closings, rolling blackouts and rationing are being drawn up in case of severe shortages this winter.

China, a powerful engine of global growth and a major market for European exports like cars, machinery and food, is facing its own set of problems. Beijing’s policy of continuing to freeze all activity during Covid-19 outbreaks has repeatedly paralyzed large swaths of the economy and added to worldwide supply chain disruptions. In the last few weeks alone, dozens of cities and more than 300 million people have been under full or partial lockdowns. Extreme heat and drought have hamstrung hydropower generation, forcing additional factory closings and rolling blackouts.

refusing to pay their mortgages because they have lost confidence that developers will ever deliver their unfinished housing units. Trade with the rest of the world took a hit in August, and overall economic growth, although likely to outrun rates in the United States and Europe, looks as if it will slip to its slowest pace in a decade this year. The prospect has prompted China’s central bank to cut interest rates in hopes of stimulating the economy.

“The global economy is undoubtedly slowing,” said Gregory Daco, chief economist at the global consulting firm EY- Parthenon, but it’s “happening at different speeds.”

In other parts of the world, countries that are able to supply vital materials and goods — particularly energy producers in the Middle East and North Africa — are seeing windfall gains.

And India and Indonesia are growing at unexpectedly fast paces as domestic demand increases and multinational companies look to vary their supply chains. Vietnam, too, is benefiting as manufacturers switch operations to its shores.

head-spinning energy bills this winter ratcheted up this week after Gazprom, Russia’s state-owned energy company, declared it would not resume the flow of natural gas through its Nord Stream 1 pipeline until Europe lifted Ukraine-related sanctions.

Daily average electricity prices in Western Europe have reached record levels, according to Rystad Energy, surging past 600 euros ($599) per megawatt-hour in Germany and €700 in France, with peak-hour rates as high as €1,500.

In the Czech Republic, roughly 70,000 angry protesters, many with links to far-right groups, gathered in Wenceslas Square in Prague this past weekend to demonstrate against soaring energy bills.

The German, French and Finnish governments have already stepped in to save domestic power companies from bankruptcy. Even so, Uniper, which is based in Germany and one of Europe’s largest natural gas buyers and suppliers, said last week that it was losing more than €100 million a day because of the rise in prices.

International Monetary Fund this week to issue a proposal to reform the European Union’s framework for government public spending and deficits.

caps blunt the incentive to reduce energy consumption — the chief goal in a world of shortages.

Central banks in the West are expected to keep raising interest rates to make borrowing more expensive and force down inflation. On Thursday, the European Central Bank raised interest rates by three-quarters of a point, matching its biggest increase ever. The U.S. Federal Reserve is likely to do the same when it meets this month. The Bank of England has taken a similar position.

The worry is that the vigorous push to bring down prices will plunge economies into recessions. Higher interest rates alone won’t bring down the price of oil and gas — except by crashing economies so much that demand is severely reduced. Many analysts are already predicting a recession in Germany, Italy and the rest of the eurozone before the end of the year. For poor and emerging countries, higher interest rates mean more debt and less money to spend on the most vulnerable.

“I think we’re living through the biggest development disaster in history, with more people being pushed more quickly into dire poverty than has every happened before,” said Mr. Goldin, the Oxford professor. “It’s a particularly perilous time for the world economy.”

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Shares slip, euro hits 20-year low on energy ills

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A man walks under an electronic screen showing Japan’s Nikkei share price index inside a conference hall in Tokyo, Japan June 14, 2022. REUTERS/Issei Kato

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LONDON, Sept 5 (Reuters) – European stock indexes fell on Monday, the euro dropped below 99 cents for the first time in twenty years and European gas prices surged after Russia said its main gas supply pipeline to Europe would stay shut.

Gas deliveries had been due to resume on Saturday, but Russia scrapped that deadline on Friday and did not give a new timeframe for re-opening. The news stoked fears of a recession in Europe, with businesses and households hurt by sky-high energy prices. read more

European gas prices jumped as much as 30% as the market opened. read more

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Germany announced on Sunday around $65 billion of support to help protect Germans from rising costs. read more

Finland and Sweden also announced plans to offer liquidity guarantees to power companies. Finland’s economic affairs minister warned of the possibility of “kind of a Lehman Brothers” in the energy industry, referring to the 2008 collapse of what was then the fourth-largest U.S. investment bank. read more

Nomura economist George Buckley said it is uncertain how much the support packages from European governments will mitigate the energy crisis.

“The impact of what’s happening from energy is absolutely enormous, so I think the bigger risk is that it’s just simply not possible – like COVID – you can do a lot to help but you can’t offset it.”

European Union energy ministers will meet on Sept. 9 to discuss options to rein in soaring energy prices, including gas price caps and emergency credit lines for energy market participants. read more

At 1414 GMT, the MSCI world equity index (.MIWD00000PUS), which tracks shares in 47 countries, was down 0.4% on the day. Europe’s STOXX 600 was down 0.8%, having recovered slightly after approaching a seven-week low earlier in the session (.STOXX).

London’s FTSE 100 was 0.1% lower (.FTSE) and Germany’s DAX was down 2.3% on the day (.GDAXI).

A public holiday in U.S. markets means lower liquidity, which could lead to outsized market moves.

The euro was trading around $0.9925, down 0.3% on the day. It slid during Asian trading hours and hit $0.9876 in early European hours, its lowest since 2002 . read more

Euro zone government bond yields rose, with Italian 10-year yields heading towards 4% . read more

The European Central Bank (ECB) meets later this week and is expected to deliver its second big rate hike in an attempt to combat inflation, which is running at more than four times its 2% target. read more

“Sky-high energy prices, the risk of gas shortages and the fiscal and regulatory response will shape the outlook for euro zone GDP and inflation much more than anything the ECB may do with rates,” Berenberg chief economist Holger Schmieding said in a client note.

In the UK, Liz Truss was named as Britain’s next prime minister, taking power at a time when the country faces a cost of living crisis, industrial unrest and a recession. In her victory speech Truss said she planned to cut taxes and deal with energy bills. read more

The British pound was down around 0.1% at $1.15125 , but slightly up against the euro at 86.275 pence .

The U.S. dollar index was little changed, while the risk-sensitive Australian dollar was near a seven-week low .

Oil prices rose more than 3%, extending gains as OPEC+ producers agreed a small oil production cut to bolster prices. read more

Euro area PMI survey data showed that Germany’s services sector contracted for a second month running in August. France’s service sector eked out modest growth, though purchasing managers there said the outlook was bleak. read more

Euro vs gas prices

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Reporting by Elizabeth Howcroft; Editing by Mark Potter, Andrew Heavens and Jan Harvey

Our Standards: The Thomson Reuters Trust Principles.

Elizabeth Howcroft

Thomson Reuters

Reports on the intersection of finance and technology, including cryptocurrencies, NFTs, virtual worlds and the money driving “Web3”.

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Pipes at the landfall facilities of the ‘Nord Stream 1’ gas pipeline are pictured in Lubmin, Germany, March 8, 2022. REUTERS/Hannibal Hanschke/File Photo

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A look at the day ahead in European and global markets from Tom Westbrook

As far as first days go, Monday is shaping as a doozy for Britain’s new Prime Minster. read more

That’s widely expected to be Liz Truss, who’d begin as leader with gas prices poised to fly after Russia cancelled the weekend’s resumption of gas flow down the Nord Stream pipe.

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Gazprom blamed an oil leak at a compressor station near where the pipeline plunges into the Baltic Sea, though Germany’s network regulator and turbine supplier Siemens said a leak was no technical reason for cutting flows. read more

The result is worst-case scenarios for Europe’s growth edging closer to reality.

The pound is within striking distance of its lowest levels since 1985. The euro is testing a fall below 99 cents for the fist time since the early 2000s, with outsized moves possible since a U.S. holiday will thin liquidity.

The latest storage figures show German facilities have already hit October’s 85% capacity target. But that achievement has required cuts to consumption so deep that they are unsustainable without damage to growth.

And the autumn has barely begun, so a lean season awaits.

Focus on Monday, apart from the appointment of Britain’s next leader, is likely to be on the fallout from the gas cut, which is already drawing emergency subsidies and liquidity guarantees in Germany and Baltic states. read more

Later in the week, the European Central Bank meets with markets pricing about a 75% chance of a 75 basis point rate hike.

Reuters Graphics

Key developments that could influence markets on Monday:

Economics: Final Europe and UK PMIs, euro zone retail sales

Speakers: Bank of England’s Catherine Mann

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Reporting by Tom Westbrook
Editing by Vidya Ranganathan & Shri Navaratnam

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Inflation Tightens Its Grip on Europe

At the Saku beer factory in Estonia, the mammoth copper brew kettles sit side by side like household sink plungers stored on a shelf in a manor house for giants. The brewery has been around for 200 years, but this is the first time in memory that the company has planned two price rises — of 10 percent each — in a single year.

And even that double-barreled increase won’t be enough to cover the brewery’s skyrocketing costs, said Jaan Harms, a board member at Saku.

“We are in an environment of increasing inflation, and, of course, energy is by far the main driver,” Mr. Harms said. When its energy contracts run out at the end of the summer, the company’s gas costs will rise 400 percent and the electricity bills will double, he said. And because the providers of every product and service they buy are also dealing with soaring fuel prices, those costs are rising as well.

estimates released Wednesday by the European Commission’s statistical office.

3 percent — a level that at the time set off alarms for reaching a decade-long high, but that would now be greeted with relief.

European Central Bank is scheduled to meet, is likely to reinforce the view that interest rates need to be raised again to curb inflation, despite the risk of recession.

Speaking at an economic summit near Jackson, Wyo., over the weekend, Isabel Schnabel, a member of the bank’s executive board, warned that inflation was more persistent than expected and said the bank needed to act “forcefully.”

“Inflation volatility has surged beyond the levels seen during the 1970s,” Ms. Schnabel said, a result of the coronavirus pandemic, the war in Ukraine and climate change that is causing widespread drought, wildfires and other extreme weather.

nearly double in October, making it difficult for millions of people to heat their homes this winter.

inflation hit 8.5 percent in July, still high but a decline from the 9.1 percent registered in June as prices for gas, airfares, used cars and hotel rooms fell.

agreement with the European Union to temporarily cap electricity prices at €40 per megawatt-hour. Professors at the Instituto Superior de Engenharia in Lisbon and at Complutense University in Madrid calculated that prices were 15 to 18 percent lower than they would have been without the cap.

Elsewhere in Europe, prices for electricity in August set eye-popping records, according to Rystad Energy, a consultancy in Norway, with an average price of €547 per megawatt-hour.

glass bottles from its Russian supplier after the outbreak of the war in Ukraine. Since then, wholesale bottle prices have shot up 20 to 80 percent.

solar panels atop its warehouses and brewery this summer, and it now boasts the country’s largest industrial rooftop solar park. In addition, the thermostats in offices will be lowered by 2 degrees this winter.

The energy crisis has also spurred the brewery to reconsider a proposal it had shelved as too expensive: the construction of a water treatment plant. The energy savings previously were not large enough to justify the cost. “But we are now thinking of doing this because the rules of the game have changed so much,” Mr. Harms said.

Saku’s initial price increase has gone through, but so far, there has not been a drop in sales. Summer vacation is prime season, Mr. Harms said, and when the weather is warm in this northern European country, people spend and drink.

But like the rest of Europe, Estonia is preparing for a dark winter.

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Inflation Hits Record 9.1% In Countries Using The Euro

By Associated Press
August 31, 2022

In the 19 countries using the euro currency, inflation rose 0.2% from a record high 8.9% in July, according to the EU statistics agency Eurostat.

Inflation in the European countries using the euro currency hit another record in August, fueled by soaring energy prices mainly driven by Russia’s war in Ukraine.

Annual inflation in the eurozone’s 19 countries rose to 9.1%, up from 8.9% in July, according to the latest figures released Wednesday by the European Union statistics agency Eurostat.

Inflation is at the highest levels since record-keeping for the euro began in 1997. The latest figures add pressure on European Central Bank officials to continue raising interest rates, which can tame inflation, but also stifle economic growth.

Prices are rising in many other countries as Russia’s war in Ukraine grinds on, triggering unprecedented increases for energy and food that are squeezing household finances. Disruptions to global manufacturing supply chains caused by the coronavirus pandemic have also played a role in pushing up prices. This summer has seen a wave of protests and strikes around the world by workers pushing for higher wages and people fed up with the high cost of living.

Inflation in Britain, Denmark and Norway, which have their own currencies, is also surging, according to official data released earlier this month. U.K. residents face an 80% jump in annual household energy bills, regulators warned last week.

Inflation is also high in the U.S., adding urgency for the Fed to keep raising interest rates. Prices were up 8.5% in July compared with a year earlier, thought that was lower than 9.1% in June.

In the eurozone, energy prices surged 38.3%, though the rate was slightly lower than the previous month, while food prices rose at a faster pace of 10.6%, according to Eurostat’s preliminary estimate. The agency’s final report, released about two weeks later, is usually unchanged.

Russia, a major energy producer, has been reducing the flow of gas to European countries that have sided with Ukraine in the war, a move that’s wreaked havoc with prices.

At the same time, nearly half of Europe has been afflicted by an unprecedented drought that’s hurting farm economies, crimping production of staple crops like corn, and driving up food prices.

Price rises for manufactured goods like clothing, appliances, cars, computers and books accelerated to 5%, and the cost of services rose 3.8%. The euro’s weakness is another factor keeping prices high. 

The currency has slipped below parity with the dollar, which can make imported goods more costly, particularly oil, which is priced in dollars.

Additional reporting by The Associated Press.

Source: newsy.com

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Inflation Hits Record 8.9% In Countries Using The Euro

Energy prices in the eurozone surged by 39.7% this month, while prices for food, alcohol and tobacco rose by 9.8%.

Inflation in the European countries using the euro currency shot up to another record in July, pushed by higher energy prices fueled by Russia’s war in Ukraine, but the economy managed better-than-expected, if meager, growth in the second quarter.

Annual inflation in the eurozone’s 19 countries rose to 8.9% in July, an increase from 8.6% in June, according to numbers published Friday by the European Union statistics agency.

For months, inflation has been running at its highest levels since 1997, when record-keeping for the euro began, leading the European Central Bank to raise interest rates last week for the first time in 11 years to tamp down prices.

The euro-area economy managed to expand by 0.7% from April through July over the previous quarter, contrasting with the contraction in the United States, where fears are growing of a recession. The outlook is just as gloomy for Europe.

Analysts say the economic growth tied to a rebound in tourism could be the last glimmer of upbeat news, with inflation, rising interest rates and a worsening energy crisis fueled by the war expected to push the euro area into recession later this year.

“This is as likely to be as good as it will get for the eurozone for the foreseeable future,” Andrew Kenningham, chief Europe economist for Capital Economics, wrote in an analyst note.

Growth already has stagnated in Germany, Europe’s traditional economic engine, after being hit with a series of cuts in Russian natural gas used for industry. France avoided fears of a recession by posting modest 0.5% growth in the second quarter, while Italy and Spain exceeded expectations with 1% and 1.1% expansions, respectively.

Energy prices, meanwhile, surged in the eurozone by 39.7% this month, only slightly lower than June due to gas supply concerns. Prices for food, alcohol and tobacco rose by 9.8%, faster than the increase posted last month because of higher transport costs, shortages and uncertainty around Ukrainian supply.

“Another ugly inflation reading for July,” said Bert Colijn, senior eurozone economist for ING bank, adding that there was “no imminent sign of relief.”

The U.S. is also facing high inflation, clocking in at 40-year highs, but unlike Europe, has already seen its economy shrink for two straight quarters. At the same time, the job market is stronger than before the COVID-19 pandemic, and most economists, including Federal Reserve Chair Jerome Powell, have said they don’t think the economy is in recession.

Many, however, increasingly expect an economic downturn in the U.S. to begin later this year or next, much like in Europe.

Europe’s risk is largely tied to its reliance on Russian energy, with Moscow throttling down flows of natural gas that power factories, generate electricity and heat homes in the winter.

More reductions this week through a major pipeline to Germany, Nord Stream 1, have heightened fears that the Kremlin may cut off supplies completely. That would force rationing for energy-intensive industries and spike already record-high levels of inflation driven by soaring energy prices, threatening to plunge the 27-nation bloc into recession.

While European Union governments approved a measure this week to reduce gas use by 15% and have passed tax cuts and subsidies to ease a cost-of-living crisis, Europe is at the mercy of Russia and the weather.

A cold winter, when natural gas demand soars, could draw down storage levels that governments are now scrambling to fill but has been made infinitely harder by Russia’s cuts.

While the European Central Bank has begun raising rates to cool inflation and expects another bump in September, it had trailed other central banks like the Fed and the Bank of England in making credit more expensive, fearing the outsize impact of soaring energy prices tied to the war.

Additional reporting by The Associated Press.

Source: newsy.com

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