US Fed Chief Jerome Powell said inflation would stick around for longer than hoped yesterday as a glut of global data suggested rising prices could slow the global recovery.
Powell said yesterday it was time to “retire” the word “transitory” to describe the rapid pace of price hikes currently spiking the world economy.
His shift in tack comes as a string of closely watched economic indicators and forecasts reveal the inflation onslaught is threatening to throw the UK economy into an anaemic state right now.
A worsening cost of living crisis intensified by looming tax hikes will prompt households to drastically cut spending, whacking the British economy’s capacity to grow next year, consultancy PwC warned.
Inflation is primed to weigh on household spending over the Christmas period.
Shop prices rose for the first time in two and a half years, according to the British Retail Consortium, prompting Helen Dickinson, the group’s chief, to warn Brits to brace for their festive shopping to be “more expensive this year”.
British businesses also share Powell’s concerns over price rises dragging on for longer.
Nearly half of business leaders expect inflation to be running higher than four per cent by this time next year, research by the Institute for Directors (IoD) found.
Concern about the inflation outlook is deterring firms from investing, which will restrict a critical source of economic growth next year, the IoD said.
Strengthening inflation expectations suggests central bankers’ bets on price rises being “transitory” may have been misjudged.
The Fed, Bank of England and European Central Bank, the cream of the central banking crop, have been using the t-word since the beginning of the year to downplay the severity of fiery inflation seeping into every corner of the global economy.
They have argued supply chain breakdowns, base effects and pandemic-induced shifts in demand, the key drivers of price rises, will end soon.
However, inflation in the US is already running at its highest print since 1990, hitting 6.2 per cent last month. In the UK, it is accelerating at the quickest pace in nearly a decade.
Eurozone inflation roared to 4.9 per cent this month, the highest reading in November since the creation of the Euro in 1999.
The Fed should end its bond purchases “a few months sooner” than first planned due to strong inflationary pressures, Powell also told a Senate committee yesterday.