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After the Covid pandemic, another pandemic seems to be approaching: that of rising prices.
Hopes for a global economic recovery, following the end of the pandemic, seem to have been dampened by a rising inflation wave, which started in the United States.
The high demand for goods after the pandemic, the lack of supply in the market and recently the war in Ukraine have caused the prices of raw materials in the markets, from energy to construction to increase stratospherically.
Even in Albania, inflation has been under the supervision of the Bank of Albania for three months. Economists expect the bank to raise interest rates soon:
“It seems that this price increase is structural. The Bank of Albania should raise interest rates, as many other central banks have done”.
But what will be the first impacts on citizens if interest rates rise?
“The lek will be appreciated more and will certainly have an impact on non-price increases, loans, bank deposits, investments and so on.”.
According to Professor Civici, prices will continue to be high for several months:
“Seeing how the prices of raw materials are going, I think that the inflationary pressure in Albania will continue to be strong for a period of several months.”.
The Bank of America is expected to raise interest rates by 0.25%. This move comes at a time when inflation in America reached its highest level in 40 years, in February, with food and energy prices at record levels.
Jerome Powell, the governor of the US Federal Reserve for months, was giving signals in this direction. Raising interest rates is a difficult economic policy. On the one hand it makes it more costly to get money, raising interest rates on credit cards, consumer loans up to mortgages. But in a healthy economy the most important indicator is: price stability. This is exactly the “golden balance” that the US governor wants, stable prices and economic growth.
Rising interest rates may reduce excess demand from consumers, given that product supply and supply chains are at a very weak point after the pandemic.
When interest rates rise, the economy slows down its development, but American economists are hoping that the slowdown is sustained and key indicators such as employment or economic growth are not hurt. History has shown that this move is the only way to save economies from high inflation rates or rising prices.
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