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The high inflation has taken many aback as gas, house, and consumer prices have been at a high. These times, reminiscent of the 1970s, have pressured central banks to raise interest rates to keep inflation down. But now, some experts are predicting that inflation will go down soon. This article looks at inflation to see how things are playing out.
The relationship between interest rates and inflation
In short, inflation describes the increase in prices in supermarkets and gas stations. People are less likely to spend money because their wages are worth less. The demand becomes higher than the supply, and in these cases, central banks try to get people to buy less. Using Interest Rates is the way central banks keep inflation down to 2% for example. Central banks such as the Bank of England and the European Central Bank work with each other. When one central bank raises the interest rates, other banks often raise their interest rates to combat inflation.
Interest rates affect inflation by labor costs. When interest rates are high, consumers are less likely to spend their money, as borrowing money for a car or things like home construction becomes more expensive. There are cases where central banks worldwide have put up interest rates several times. However, it is a question of balance. If the interest rates are too high too quickly, it could unleash an economic crisis.
The current inflation
Experts currently have varying opinions, but there are signs that the high inflation is ending. Within the summer months of 2023, the inflation has been less than 2 percent, which is the target of the Federal Reserve in the United States. The Federal Reserve however, has announced that the bank will keep the interest rates high. In these times, the market is monitored closely.
Some experts credit the Federal Reserve for keeping inflation down by raising interest rates. However, other experts are crediting the falling inflation to the businesses. Businesses can only produce a maximum amount of goods, and prices rise when the demand is above that maximum.
Consequences for the housing market
Because of the inflation, it has been more expensive for future homeowners to borrow money for a house. However, inflation has also impacted renters who have been affected differently. According to a report by Bank of America, renters have had a tighter economy in the last year. Rent has risen alongside general consumer prices, making it more expensive to be a renter in America.
