CNN Business: The battle to reduce inflation is far from over

Given the unprecedented rise in interest rates, under the framework of tightening monetary policy by central banks around the world, some banks, such as the Federal Reserve and the European Central Bank, have begun to say that the rate hike cycle is coming to an end, and investors have expressed excessive enthusiasm in calling for an end to rate hikes, resulting in a surge in stock markets. However, the US CNN network believes that the battle to reduce inflation is far from over.
CNN reported in a report that overall inflation has slowed sharply in recent months. In the United States, consumer prices rose by 3% in June last year, a slight increase from the 40-year high of 9.1% in 2022. In the 20 countries that share the euro, consumer prices rose by 5.3% in July last year, which is exactly half of the record high inflation rate in October 2022.
Inflation in the UK is high and relatively stable, reaching 7.9% in July this year, down from 11% in October last year, the highest level in 41 years.
However, the US News Network reported that this optimism may be misplaced as oil and food prices have risen sharply in recent weeks while wages in some of the world’s largest economies are still growing strongly.
CNN quoted Richard Bruns, co-founder of data provider Energy Aspects, as saying that crude oil prices are expected to continue to rise due to production cuts by major exporting countries, global demand exceeding expectations and relatively low global inventories.
Bronze explained that while demand is modest, it is better than many of us expected at the start of the year, noting that consumer demand for things like flights and travel, things that increase demand for oil, remains strong.
The International Energy Agency expects global oil demand to rise to a record 102 million barrels per day this year. But global oil production is expected to rise to $101.5 million, the agency said in a report last month.

CNN talked about global food prices, saying that global food prices have been falling since July last year, when Russia and Ukraine signed an agreement to allow safe passage for ships carrying food and fertilizer from Black Sea ports to global markets, but Russia withdrew from the agreement, which was reached in July last year, on the pretext that the main purpose of the agreement was to supply food to countries in need, but this goal has not been achieved.
The website quoted analysts as saying that expectations for global supplies of major food commodities have “deteriorated” since the beginning of the year, and they expect prices to rise as a result. They added that wheat supplies could be in serious shortfalls due to Russia’s withdrawal from the Black Sea agreement and unusually hot and dry weather in other producing areas this year.
Against the same backdrop, the Food and Agriculture Organization of the United Nations (FAO) said last week that its global food price index rose in July from the previous six months, marking the second increase since July 2022.
CNN quoted Randall Kroszner, former Federal Reserve President and professor of economics at the University of Chicago Booth School of Business, as saying, “It would be foolish for any central bank to declare victory over inflation.” “We’ve seen that inflation has come down, but we do need to see that this decline is sustainable,” he added.
Regarding the labor market in countries like the United States and the United Kingdom and its relationship to inflation, Krosner said, “Labor costs are by far the most important input to the services sector and remain a very important input to the manufacturing sector, so if wages continue to rise rapidly even as commodity prices fall and interest rates continue to rise…inflation is likely to persist.”
With unemployment low and the labor market still relatively tight (i.e., there are more job openings than applicants), Kroszner expects wage growth to remain strong in the near term, adding that many companies will continue to meet wage demands because it is difficult to get employees.
CNN noted that major central banks have raised interest rates at a record pace over the past 18 months in an attempt to limit price increases, even as austerity policies have hurt their economies. She added that a so-called “soft landing,” where inflation falls but there is no outright recession, appears to be around the corner in the U.S. and U.K., noting there are also signs that a mild recession in the eurozone may be over.
Kroszner said that while central banks must remain “vigilant,” he did not expect “inflation to return to the high levels reached last year” because some drivers, including supply bottlenecks and heavy government spending during the COVID-19 pandemic, “are no longer in play.
It is worth noting that global inflation began to accelerate in late 2021 as economies reopened following the COVID-19 pandemic, and then Russia’s military operations in Ukraine, which have continued since February 2022, have led to an increase in global inflation and a strengthening of price increases in food and energy prices.