Central banks weigh rate hikes amid rising energy costs and inflation

Major central banks, including the US Federal Reserve, the European Central Bank, and the Bank of Japan, are tightening monetary policy as rising energy costs renew inflation pressures. In the United States, annual consumer inflation rose to 3.7% in September, driven largely by a 9.1% jump in gasoline prices. Core inflation, which excludes food and energy, also accelerated to 2.6%.

Economist Huw Dixon has warned that these energy-driven pressures could lead to economic stagnation, noting that recessions are probable in several G7 economies heading into 2027. While the Bank of England has held its benchmark rate steady, policymakers in the US and eurozone are increasingly looking toward December for potential further rate hikes to combat persistent core inflation.

Data suggests that price pressures are extending beyond energy costs. In the US, the personal consumption expenditures price index remains elevated, with core PCE inflation holding near 3%. This persistent inflation strengthens the case for continued tightening by the Federal Reserve to reach target levels.