Central Banks Unleash Rate Hikes as Inflation Pressures Mount

Central banks around the world are stepping up their fight against inflation as price pressures continue to build. The dream of a 'soft landing' that brought high inflation down without triggering a recession has given way to a more aggressive stance, with many policymakers warning they won't make the same mistake twice.

The European Central Bank is expected to raise its deposit rate to 2.5% on September 10th, while the Federal Reserve may follow suit in the near future. The Bank of Japan and the Bank of Korea have already increased borrowing costs this year, and New Zealand's central bank raised rates on September 2nd.

The main culprit behind rising inflation is energy prices, driven up by war in the Middle East. But core inflation, which strips out energy and food, has also increased, with The Economist estimating it rose from 2.7% to 2.9% over the past year.

Services inflation is rising in two-thirds of rich countries, despite declining wage growth in many nations. Market-based measures of inflation expectations have not moved significantly in recent weeks, but some indicators point to strengthening global inflationary pressures.