Frankfurt – Some of the world’s biggest central banks meet this week as fears grow the energy shock unleashed by the Middle East war could fuel inflation and weigh on growth.
The US Federal Reserve, European Central Bank, Bank of England and Bank of Japan hold previously scheduled meetings on Wednesday and Thursday, with their comments on the conflict’s potential fallout set to be closely scrutinized.
The war, which began with US-Israeli strikes on Iran, has led to the closure of the Strait of Hormuz, a key energy transit route, as well as Iranian attacks on energy infrastructure around the Gulf.
Oil and gas prices have surged, which typically feed into higher household energy and food costs, raising fears of a repeat of the 2022 Ukraine war inflation shock.
But rather than rushing to hike rates to cool off a potential price spike, policymakers are expected to keep borrowing costs on hold for now while offering assurances they stand ready to act.
“We think most central banks will remain on hold this time and wait to assess the impact of the spike in energy prices on inflation,” UniCredit analysts said in a note.
Despite the worries about a surge in global costs similar to that seen in 2022, when inflation topped 10% in the eurozone and nine percent in the US, some analysts played down the dangers.
Allen-Reynolds of Capital Economics said that the economic backdrop in 2022—with loose monetary and fiscal policy combined with an energy shock and supply constraints—was different to that today.
“It was a kind of perfect storm for inflation,” he told AFP. “We’re not in that world now.”
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