WHERE NEXT FOR THE GLOBAL ECONOMY?

Why central banks face an epic battle against inflation in 2023

- STEVE SCHIFFERES

SOME OF the world’s biggest economies—and their central banks—face a tricky task this year taming inflation via higher interest rates without triggering a recession.

And whether they like it or not, the US Federal Reserve, the Bank of England, and other central banks [including the South African Reserve Bank] are now being thrust into the centre of a political debate that could threaten their independence as well as their ability to act decisively to curb rising prices.

I’ve been following and covering politics and finance for four decades as a reporter, and now as an economics research fellow. I believe there are two key ways that politics may interfere with central bank plans in 2023.

An inflationary challenge

High inflation is perhaps the biggest challenge facing the world economy over the coming year.

Inflation has rapidly accelerated, and is now at or near its highest rate in decades in most developed economies like the US and in Europe, causing living standards to stagnate or decline in many countries. This has particularly hurt the poorest people, who suffer a higher rate of inflation than the general population because they spend more of their income on food and energy.