Why are central banks still worried about inflation?

**Sam Fennick** (0:01)
Central banks agree on one thing, it's not over yet.

**Christine Lagarde** (0:04)
When you have your inflation outlook up, your core inflation up.

**Kevin Warsh** (0:09)
We've all looked around, and we've seen the prices are too high.

**Sam Fennick** (0:13)
It's World Business Report from the BBC World Service. I'm Sam Fennick coming up today while Europe and America's top bankers are still worried about inflation and what's actually driving it. Why the Gulf oil industry will have to build back better to secure supply chains? And as one of California's own becomes a trillionaire, the state votes on taxing exactly that kind of wealth.
2.8%, that's where euro area inflation landed on Wednesday, down from 3.2% in May. Below what economists expected, the first monthly fall in prices all year. Now, three weeks ago, the European Central Bank raised interest rates for the first time since 2023 Its president, Christine Lagarde, told the ECB's annual gathering of central bankers in Sintra, Portugal, why?

**Christine Lagarde** (1:15)
When you have your inflation outlook up, your core inflation up, when you have the underlying inflation indicating that it's also trending up as well, and that you're only going back to your 2% target at the end of 28, with the number of things happening in our inflation outlook, which includes, you know, the market expectations in particular, you have the obvious decision, and it was so obvious that we had a unanimity decision within the Board of the Governing Council.

**Sam Fennick** (1:49)
Sitting beside her, the new US Federal Reserve Chair, Kevin Warsh. He said that Washington sees exactly the same problem.

**Kevin Warsh** (1:58)
You know, I'll reinforce something that President Lagarde just said. We're on the price stability business. That might not be our only business, but if there was a common thing I heard over the last couple of days, it was open mindedness on these questions of AI, open mindedness on productivity. But we've all looked around and we've seen that prices are too high. And I don't think I'm the only one on this stage that's recommitted to deliver price stability.

**Sam Fennick** (2:22)
So two central banks there, same warning. But the ECB isn't expecting this to be fixed until the end of twenty twenty eight. So does one good month change anything? Well, to make sense of this, on both sides, we're joined by two experts on both sides of the Atlantic. Susan Schmidt is portfolio manager at Exchange Capital Resources in Chicago, in the US, and in London, we're joined by Ella Hoxha. She's head of fixed income at Newton Investment Management. Let's start first of all with Susan. So Kevin Warsh there. We haven't heard much of him. This has been his first kind of international outing. He says price is still too high.
What's actually pushing it right now? And what are Americans paying more for?

**Susan Schmidt** (3:07)
Well, the world, I think, is paying more for gasoline, petrol, as you would say, and just general price increases because of the concern over the price of energy due to the conflicts in the Middle East.

**Sam Fennick** (3:21)
So Ella, prices in Europe actually fell though last month. So what changed there for those consumers?

**Ella Hoxha** (3:28)
Yes, actually, the energy basket is perhaps where you saw the biggest drop. So we went from 10.8% last month, also in May, I guess, it's July now. So we went to 8.7%.
So quite a big drop there on the back of tensions in the Middle East easing off. So services also fell a little bit, but the biggest contributor was certainly energy.

**Sam Fennick** (3:54)
So is the point that the European Central Bank, Ella, has acted more quickly than other central banks in increasing interest rates and therefore sort of, you know, putting the brakes on this a bit quicker than others?

**Ella Hoxha** (4:09)
Absolutely. I mean, they were scarred by the experience of 2022, you know, when inflation significantly shot up.
And on top of it, they have a single mandate as a central bank, and that is to have inflation at or around the 2% level. Whilst the Federal Reserve of the US also has a second element to its mandate, and that's to keep employment, you know, at pretty opportune levels.

**Sam Fennick** (4:35)
Susan, I watched the panel discussion this afternoon between all the central bankers, and Walsh was pushed quite a lot on what guidance he might give, what might the Fed do next. He's absolutely keeping it zipped. Is that discipline? Or does he just want to leave everyone in the dark? Is he kind of, you know, making sure the markets don't respond?

**Susan Schmidt** (4:57)