Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.
With Energy prices rising hitting fuel prices, to me that is already anti inflationary as I reckon I drive less and spend on other things to combat the fact I have less money to spend as more goes to fuel. So why then do central banks punish us further with higher interest rates to combat inflation from rising fuel prices when higher fuel prices are punishing us anyway. Seems we get whacked twice
Hi Peter,
That might be true for you, but it is not a broader economic reality. The cost of fuel is a major input in many forms of economic activity that cannot be circumvented without having wider ramifications. Ultimately, the data shows that fuel plays a major part in inflation from both a consumer and a corporate point of view given the impact on the cost of logistics and transportation, which flows into higher costs of goods and services.
Interest rate hikes work to curb inflation by reducing consumption which in turn has a direct impact on things like fuel costs (weaker demand should theoretically reduce prices all else being equal), but it is a very blunt instrument that will unfortunately have negative impacts on some individuals, which you have highlighted.
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