Raghuram Rajan warns peak inflation is yet to come

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If you’re a mountaineer climbing Mount Inflation, the summit is still some distance away, according to terrain expert and former Reserve Bank of India Governor Raghuram Rajan.

Rising inflation around the world has led central banks to raise their key interest rates in an effort to combat it. Just this Wednesday, RBI Governor Shaktikanta Das announced the unanimous decision of the Monetary Policy Committee (MPC) to raise the key interest rate at which the central bank lends money to banks – from 50 basis points to 4.9%.

Now, all eyes are on the all-important US Consumer Price Index (CPI) inflation data for May, which is due later tonight. Economists expect an annual increase of 8.3% and underlying inflation of 5.9%.

Rajan, who is now a professor of finance at the University of Chicago – Booth School of Business – said: “I think there is evidence to show that there are still effects, for example, the recent increases in oil prices, which will fuel both headline inflation and, eventually, underlying inflation. So we may not have seen the peak of inflation yet.

“But the big question the Fed is also asking is how much it will take in terms of interest rate hikes to bring it down,” he added.

Yesterday, the European Central Bank (ECB) also revised down its growth forecast and raised its inflation forecast.

“With 8% inflation, the ECB has very little choice… Much of that inflation is due to energy prices, these are volatile, they could well go down and the core is really lower,” Rajan said.

Watch the attached video for more details.

(Edited by : Abhishek Jha)

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