European Central Bank raises rates again to fight inflation

The European monetary institution raises its main interest rates. The challenge : stem the inflationary spiral. The boss of the ECB, Christine Lagarde, had warned: the rates would continue to increase in several times. So there are no surprises. Especially since, at the same time, inflation is not weakening in Europe, at more than 9% in August in the euro zone. An unprecedented level, obviously driven by energy prices against a backdrop of war in Ukraine and soaring gas prices.

When money is dearer, everyone spends less on it, which slows down demand, slows the rise in prices. That of wages too, which mechanically feeds, according to some economists, the rise in prices, creating a kind of infernal inflationary spiral. And then politically, the ECB thus shows by raising its rates that it is supporting its currency, the euro, which is weakening against the dollar. It has lost 15% in one year, against the greenback. And it is in dollars that we buy gas and electricity in particular on the markets, which does not help at the moment.

What are the expected effects of this rate hike on our wallet? Money costs more for everyone. For the states when they borrow, For the banks too. This increase in the key rates of the ECB will have repercussions on the entire economy, on all those who want to borrow money. The debt burden is increasing. It’s in the billions. Businesses are also affected, and then of course, interest rates increase for individuals who want to buy real estate.

This is obviously the second major issue. How to curb inflation without hampering activity too much, and therefore growth. INSEE has revised its forecasts downwards for the end of the year, with zero growth for the last quarter of 2022, but no recession on the horizon for the moment, according to its forecasts. Even if the Governor of the Banque de France does not exclude it for 2023. Even if obviously, these are only statistical forecasts.


source site-19

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