The global economy is always in flux and therefore changes in inflation and interest rates can be difficult to parse out. However, the recent announcement of the highest interest rates in two decades could be an indication of the health of the economy and consumer strength.
Inflation data, which is expected to be released over the coming months, will give a greater indication of the strength and well-being of the consumer. High inflation is a sign of economic growth, resulting from increased consumer activity, however this can be counteracted by a rise in the interest rates.
When interest rates are rising, consumers are incentivised to save rather than spend because their savings will yield a higher return. This can result in a drop in consumer activity, which can lead to lowered economic growth. Therefore, when analyzing the effects of the highest interest rates in two decades it is important to look at the inflation rate.
The recent rise in interest rates serve as a warning; although it could indicate an increase in consumer spending, it could also lead to stagnating economic growth if the inflation rate does not remain in check.
The upcoming inflation data, while not providing a complete picture of the health of the economy, will nevertheless give insight into the strength of the consumer and the overall health of the economy. The high interest rate is a cause of concern, however an analysis of the inflation data will give a greater understanding of whether or not the consumer is in a financially stable position.