The current state of interest and inflation rates
The current macroeconomic environment is slowing down health care services M&A, as inflation eats into margins and debt financing dries up. In this week’s infographic we look at the state of interest rates and inflation rates in major economies across the world.
Central banks have risen their base interest rates in almost every major economy, with the intention of putting the brakes on demand in order to bring down inflation, which is at the highest levels seen since the 1980s in every advanced economy.
But they are being extremely cautious in doing so. Many economies have already gone into recession and central banks are understandably wary about causing more economic pain than necessary. The paradoxical result is that interest rates have gone up, but not by anywhere near as much as inflation in most places. So, even assuming inflation rates are half their current rates a year from now, real (inflation-adjusted) interest rates are still low, and in many cases negative, at least for short-term borrowing. More bank rate rises will therefore be required if inflation is to be brought under control.
Regardless of the level of inflation, every time central banks raise their rates, they incentivise commercial banks to pull debt financing from the economy and put it into central bank reserves (because the rate being paid on them has just been raised). So the dearth of debt financing which we hear is turning off the health care M&A tap looks set to last several more months at least.
We would welcome your thoughts on this story. Email your views to Martin De Benito Gellner or call 0207 183 3779.
