Latest News

Interest rate hikes are a blunt yet dangerous weapon in inflation fight

0

June 13, 2022 (Investorideas.com Newswire) Interest rates hikes are a “blunt yet dangerous weapon” in the fight against scorching hot inflation, which is hitting low-income households the hardest, warns the CEO of one of the world’s largest independent financial advisory, asset management and fintech organisations.

The warning from deVere Group’s Nigel Green comes as the average global inflation rate reaches 7.4%.

In the U.S., UK and Germany, inflation has risen to the highest rate for 40 years. Consumer price growth has even begun surging across Asia, a region that until recently had largely been able to avoid the broad-based global trend.

Inflation in Latin America’s largest economies is the highest it’s been in 15 years; the overall rate in Sub-Saharan Africa is expected to grow to 12.2% this year; the Netherlands this year nearly tripled to 9.2%; and Australia’s has doubled to 5.3%.

Nigel Green says: “Inflation is a serious global problem. There are real fears of a return to the chronic inflation and recessionary landscapes of the 1970s.

“In an attempt to tackle the scourge of surging prices, central banks around the world are hiking interest rates. According to the theory, when interest rates are higher less money will be spent. When less money is being spent, prices for consumer goods rise more slowly.

“But raising interest rates is a blunt weapon in this fight.

“Hiking borrowing costs can only do so much to address the triggers of inflation on the supply side of economies, like unprecedented shipping backlogs or shortages of materials and labour, Covid lockdowns in China, and the war in Ukraine.”

He continues: “Raising interest rates to fight inflation is also a dangerous weapon too.

“Inflation is hitting lower and middle-income families up to a third harder than the richest ones, according to research, because they need to spend a higher proportion of their income spent on essentials such as food and energy.”

Clearly, something needs to be done to shield the poorest families from the worst effects of rising prices.

“However, hiking interest rates may not be the solution? Why? Because lower-income households are the ones most likely to have credit – and higher interest rates mean higher borrowing costs,” says the deVere Group CEO.

“In addition, it intentionally slows the economy which might then trigger a recession and stunt companies’ efforts to invest and create jobs which, again, would have a greater negative financial impact on poorer families.”

Nigel Green concludes: “The most effective weapons in the fight against inflation are not within the remit of central banks.

“The best measures lie in getting a conclusive international grip on the pandemic, stopping the war in Ukraine, solving supply-chain problems, and significantly ramping up the production of green energy – energy demand is only set to increase over time and interest rate hikes will not be enough to dampen demand.”

t: +44 207 1220 925
e: george@priorconsultancy.co.uk
Twitter: @PriorConsults

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.

More Info:

This news is published on the Investorideas.com Newswire – a global digital news source for investors and business leaders

Disclaimer/Disclosure: Investorideas.com is a digital publisher of third party sourced news, articles and equity research as well as creates original content, including video, interviews and articles. Original content created by investorideas is protected by copyright laws other than syndication rights. Our site does not make recommendations for purchases or sale of stocks, services or products. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities. All investing involves risk and possible losses. This site is currently compensated for news publication and distribution, social media and marketing, content creation and more. Disclosure is posted for each compensated news release, content published /created if required but otherwise the news was not compensated for and was published for the sole interest of our readers and followers. Contact management and IR of each company directly regarding specific questions.

More disclaimer info: https://www.investorideas.com/About/Disclaimer.asp Learn more about publishing your news release and our other news services on the Investorideas.com newswire https://www.investorideas.com/News-Upload/ and tickertagstocknews.com

Global investors must adhere to regulations of each country. Please read Investorideas.com privacy policy: https://www.investorideas.com/About/Private_Policy.asp

The Fed: Economists say Fed will stick to 50 basis points this week, Powell will open door to more aggressive action later

Previous article

Chronic 1970s inflation looms, shrinking economy, markets rattled

Next article

You may also like

Comments

Leave a reply

Your email address will not be published.

More in Latest News