00:00Let's discuss this now with international economist Vicky Price.
00:03Vicky, thanks so much for joining us.
00:06Are we just in the midst of a rating hike globally now?
00:12I'm afraid we are, but of course, as we know, the Bank of England did not raise rates,
00:17whereas, of course, the ECB had raised rates a little bit by a quarter of a point,
00:22and then, of course, a day earlier, the Fed had also done the same.
00:29So the Bank of England is, in a way, an outlier in this,
00:32but there is no doubt that if you listen to the hawkish comments that were made
00:37by the governor of the Bank of England, that an interest rate increase is coming.
00:41And, of course, what we have been seeing is, as you rightly say, a substantial increase in oil prices.
00:46If you just look at what's been happening month on month,
00:50oil prices have gone up by something like 18%, and they are over 50% up on a year ago.
00:55So those are putting pressure, of course, on a wider range of goods.
01:02So it's not just the energy costs that are going up, but gradually it gets reflected in the whole economy.
01:09Not very significantly so far, and that is the justification for why the Bank of England
01:14has left interest rates unchanged for the moment, but it's going to be monitoring it all very closely.
01:19Let's talk about Japan specifically, because it's historically had very low inflation or below zero inflation.
01:29How significant is it that even Japan is having two hike rates?
01:33Well, Japan, as you rightly are suggesting, has not been used to having inflation at all.
01:38It has had decades of deflation, and, of course, it was pumping money into the economy through massive quantitative easing.
01:44In other words, sort of buying bonds in the market, in the secondary market,
01:50in order to allow an awful lot more liquidity in the system and try and get prices to at least
01:56move to zero.
01:58What we've seen now is that because of the oil price increases,
02:01and, of course, we must remember that Japan is a major importer of energy,
02:05it is now seeing inflation, and it has not raised interest rates actually sufficiently to combat that.
02:13Nevertheless, inflation is not particularly high in Japan at present.
02:17I mean, we are still talking about inflation at around 2%.
02:20Well, that means that the effect hasn't been that significant,
02:26but what it has meant is that because Japan has not been raising interest rates
02:31to combat the inflation increase that it has seen, the yen has been falling.
02:36And with the yen falling, the concerns are that inflation will be considerably higher in the future.
02:41And, of course, they've even had to intervene, and with the help of the U.S., to prop up the
02:46yen,
02:46so you can understand why they're now raising interest rates in order to make sure
02:51that perhaps they don't need to do that in the future.
02:53We are now firmly sitting in over $100 a barrel territory.
02:59I was wondering if you could just look forward.
03:00We certainly don't know how long this will last because we don't know how long the war in Iran is
03:04going to last.
03:05But what do you, at this stage, if things stay as they are,
03:08what do you see for global economies as we move closer to 2027?
03:13Well, everyone has been upgrading their forecast for inflation, without any doubt,
03:18and I think they're quite correct to do so.
03:20If the prices of both Brent and WTI stay as elevated as they are,
03:26which is above, indeed, $100 a barrel,
03:29the real concern is that we're moving into what the International Monetary Fund had called its depression,
03:36not necessarily depression, recession scenario, which it had abandoned actually through the summer.
03:41Because if you remember, oil prices came down a little bit, and everyone thought, well, that's great.
03:45In fact, they had come down to the levels we had not seen since before the Iran war.
03:51So everyone sort of calmed down a little bit.
03:53What's been going on since is that the IMF abandoned that scenario,
03:59thinking everything perhaps would be fine.
04:00But that scenario is now reappearing in everyone's minds,
04:04because if prices do indeed stay at over $100 a barrel for some time and rise even further,
04:12there are some forecasts that it may well, because of everything that's happening now,
04:14go up to $120, possibly, then the Western world is particularly affected.
04:20We're still going to see growth in China and India,
04:22but actually, for the Western world, it could well mean it wipes out any growth
04:27that has been expected for 2027.
04:29Thanks so much for your analysis there.
04:32That's international economist Vicky Price.
04:34Thanks so much for your analysis.
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