The main cause of this slump has been the increase in interest rates. Increased interest rates are brought about by inflation. Inflation in some places around the world is starting to fall – those countries which measure inflation on a monthly basis (e.g. the US and the UK) are showing lower inflation. (It is difficult to know what the trend in New Zealand might be because inflation is only measured here on a quarterly basis).
However, although inflation in the US is falling, it is still a long way above where it needs to be to see lower interest rates: inflation in the US is currently 6 percent, but the Federal Reserve wants to see it head towards 2 percent.
The Fed, therefore, may continue to ignore the calls which ask for it to stop increasing interest rates so that the US (and perhaps the world) has a soft economic landing and avoids recession.
These calls are falling on deaf ears at the moment – it could be some months until inflation is low enough for the Fed and other Central Banks to slow their interest rate rises, let alone start to reduce rates.
Inflation and higher interest rates hurt consumers. Incomes often do not keep up with the rising cost of goods, and higher interest rates add to the economic pain. The squeeze on consumers’ budgets leads to lower expenditure as people tighten their belts to get through the rough period.