WSJ: Inflation highlights pressures on central banks to curb prices

Wall Street Journal said that the recent rise in global inflation rates highlights the limitations of central banks’ ability to control prices, noting that inflation is largely driven by global supply-side factors.

The newspaper explained that Europe is unlikely to resort to full monetary stimulus unless the United States takes the initiative first, especially in the absence of an economic recession.

It pointed out that the European Central Bank and the Bank of England (the British Central Bank) have adopted policies similar to the US Federal Reserve. For example, the European Central Bank was the first to cut interest rates this year, while the Bank of England was a little late in taking the same step.

However, the newspaper stated, in a report, that unlike the United States, the eurozone and Britain have not resumed the growth path they were on before the Corona pandemic, noting that Europe has fewer technology companies than those in the United States, and its financial stimulus is less generous.

The growing manufacturing in China poses a major challenge to the economic model of the eurozone countries, which rely mainly on exports. However, the Wall Street Journal quoted official surveys as saying that the rise in borrowing costs had a more pronounced impact in reducing demand for bank loans in the eurozone than in the United States during 2023 and 2024. However, interest rates in the eurozone are still lower than their counterparts in the United States, as the benchmark interest rate in Europe is 3%, compared to a target range of 4.25% to 4.5% in America. Federal Reserve officials estimated the “neutral interest rate” at about 2.9%, a rate that does not stimulate or slow the economy. In contrast, European Central Bank President Christine Lagarde set this rate between 1.75% and 2.55%, justifying this by the slowdown in long-term growth in the eurozone.