ICAC: Countries Are Fighting Inflation by Raising Interest Rates, but Recession Fears Mandate a Cautious Approach


Date Posted: 18 November 2022

Executive Summary

Highlights from the November 2022 Cotton This Month include:

  • To combat the Covid pandemic, many countries pushed money into the marketplace to keep their economies afloat
  • A consequence of that cash infusion was rising inflation, so central banks started raising interest rates, but not too aggressively due to fears that would cause a recession 
  • Interest rates in the USA have been unusually low, so rates have been increasing faster there 

Countries Are Fighting Inflation by Raising Interest Rates, but Recession Fears Mandate a Cautious Approach

During a financial crisis, governments do whatever they can to mitigate the damage — but sometimes the cure is worse than the disease, and that’s the dilemma that central banks around the world are struggling with at the moment.

The Covid lockdowns were such a threat that many countries injected cash into the marketplace, which caused rampant inflation. To fight the inflation, central banks are now raising interest rates but they are trying to be cautious because if they raise them too high or too fast, it could drive their economies into recession. It’s a difficult balancing act, especially in the USA because interest rates were unusually low and the Federal Reserve Bank has had to act more aggressively than many other countries.

For the cotton market specifically, the global outlook suggests that production will remain high enough to accommodate consumption, especially as consumption continues to fall.

Cotton This Month is published at the beginning of the month with the Cotton Update published mid-month. The Cotton Update, which is included in the Cotton This Month subscription, is a mid-month report with updated information on supply/demand estimates and prices. The next Cotton This Month will be released on 1 December 2022. The next Cotton Update will be released on 15 December 2022.

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Please contact the author, ICAC Data Scientist Matthew Looney, with questions on this report.

About the International Cotton Advisory Committee (ICAC)

Formed in 1939, the ICAC is an association of cotton producing, consuming and trading countries. It acts as a catalyst for change by helping member countries maintain a healthy world cotton economy; provides transparency to the world cotton market by serving as a clearinghouse for technical information on cotton production; and serves as a forum for discussing cotton issues of international significance. In addition, members can take advantage of the ICAC’s global network of cotton researchers, whose expertise covers the supply chain from farm to textile manufacturing, and have free access to its cutting-edge technologies like the voice-based app and virtual technology cotton training programme. Committed to ensuring cotton’s continued sustainability, the ICAC is the only intergovernmental commodity body covering cotton that is recognised by the United Nations.