LONDON/FRANKFURT: Top central banks said on Thursday they stood ready to tackle any surge in inflation with tighter policy, as an escalation in the Iran war put the Middle East’s vital energy infrastructure in the line of fire and pushed fuel prices higher.
In a rare coincidence of the monetary policy diary, central banks of the United States, Japan, Britain, Canada and the euro zone - effectively the Group of Seven (G7) nations - convened this week, as have counterparts from several emerging economies.
After facing criticism they acted too late to tame a post-COVID jump in inflation exacerbated by the Russian invasion of Ukraine in 2022, policymakers are determined to rein in prices without derailing still-patchy economic growth - and above all to avoid a “stagflation” mix of recession and price surges. The US Federal Reserve and the Bank of Canada on Wednesday both opted to hold interest rates steady, as did the Bank of Japan, Bank of England, European Central Bank and the central banks of Switzerland and Sweden on Thursday.
Yet they made clear they are on alert, wary that rising energy prices could spark a wave of inflation across the wider economy if, for example, it starts to prompt higher wage demands by households fearful of losing purchasing power.
“The war in the Middle East has made the outlook
significantly more uncertain, creating upside risks for inflation and downside risks for economic growth,” the ECB said.
In her press conference after the decision, ECB President Christine Lagarde said the euro zone was resilient and that low inflation meant it was “well positioned” to deal with what she called “a major shock that is unfolding”.
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