Developed nations fight inflation in 2024

In 2024, developed nations faced a tough battle with stubborn inflation, still reeling from the effects of the 2019 coronavirus pandemic. The road ahead looks just as challenging, as meeting inflation targets in 2025 will take much effort, according to the OECD. The war in Ukraine compounded the economic mess, pushing supply chains to the breaking point while energy and food prices soared, sending inflation to new heights across the globe and straining household budgets.

Countries like the US and parts of Europe saw inflation hit 40-year highs, reversing years of stable prices. Despite aggressive interest rate hikes, the battle to bring inflation down remains a tough one. Even as the Federal Reserve lowered its policy rate slightly in December, it warned that inflation control efforts would continue into the new year, with inflation expected to hover around 2.4% in 2024 and 2.5% in 2025. This forecast reflects concerns that President-elect Donald Trump’s protectionist stance—especially new tariffs on imports from China, Mexico, Canada, and Europe—will stoke further inflation, while potentially damaging growth.

In the US, inflation dropped from a high of 9.1% in mid-2022 to below 3% recently, but Trump’s proposed tariffs could push prices up again. A small increase in tariffs could add an extra 0.1% to annual inflation, raising prices and possibly pushing unemployment higher as his stricter immigration policies take hold.

Meanwhile, in Europe, central banks have made some strides against inflation, but the region faces stagnation in growth. The eurozone’s inflation stood at 2.2% in November, with the European Central Bank likely to reduce interest rates further to stimulate the economy. However, the road to recovery remains slow, especially in Germany, where weak consumption and stalled economic growth continue to hurt prospects. Germany’s export-driven economy, especially reliant on trade with the US and China, has taken a hit from rising energy costs, a lack of investment, and aging demographics.

Germany narrowly avoided a recession, with a slight contraction in the second quarter of the year and minimal growth in the third. Its manufacturing sector, once a pillar of strength, remains fragile, weighed down by global economic slowdowns and rising protectionism.

A report from Columbia Business School highlighted how, despite looser trade restrictions and tight monetary policies in developing economies, the rising long-term real interest rates have made it harder for central banks to control inflation. This has led to more frequent inflationary spikes, exacerbated by global disruptions throughout 2024.
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