The U.S. federal funds rate peaked in 2023 at its highest level since the 2007-08 financial crisis, reaching 5.33 percent by December 2023. A significant shift in monetary policy occurred in the second half of 2024, with the Federal Reserve implementing regular rate cuts. By December 2024, the rate had declined to 4.48 percent. What is a central bank rate? The federal funds rate determines the cost of overnight borrowing between banks, allowing them to maintain necessary cash reserves and ensure financial system liquidity. When this rate rises, banks become more inclined to hold rather than lend money, reducing the money supply. While this decreased lending slows economic activity, it helps control inflation by limiting the circulation of money in the economy. Historic perspective The federal funds rate historically follows cyclical patterns, falling during recessions and gradually rising during economic recoveries. Some central banks, notably the European Central Bank, went beyond traditional monetary policy by implementing both aggressive asset purchases and negative interest rates.

The Federal Reserve's balance sheet has undergone significant changes since 2007, reflecting its response to major economic crises. From a modest 0.9 trillion U.S. dollars at the end of 2007, it ballooned to approximately 6.76 trillion U.S. dollars by March 2025. This dramatic expansion, particularly during the 2008 financial crisis and the COVID-19 pandemic - both of which resulted in negative annual GDP growth in the U.S. - showcases the Fed's crucial role in stabilizing the economy through expansionary monetary policies. Impact on inflation and interest rates The Fed's expansionary measures, while aimed at stimulating economic growth, have had notable effects on inflation and interest rates. Following the quantitative easing in 2020, inflation in the United States reached eight percent in 2022, the highest since 1991. However, by November 2024, inflation had declined to 2.7 percent. Concurrently, the Federal Reserve implemented a series of interest rate hikes, with the rate peaking at 5.33 percent in August 2023, before the first rate cut since September 2021 occurred in September 2024. Financial implications for the Federal Reserve The expansion of the Fed's balance sheet and subsequent interest rate hikes have had significant financial implications. In 2023, the Fed reported a negative net income of 114.3 billion U.S. dollars, a stark contrast to the 58.84 billion U.S. dollars profit in 2022. This unprecedented shift was primarily due to rapidly rising interest rates, which caused the Fed's interest expenses to soar to over 281 billion U.S. dollars in 2023. Despite this, the Fed's net interest income on securities acquired through open market operations reached a record high of 174.53 billion U.S. dollars in the same year.

In June 2024, the European Central Bank (ECB) began reducing its fixed interest rate for the first time since 2016, implementing a series of cuts. The rate decreased from 4.5 percent to 3.15 percent by year-end: a 0.25 percentage point cut in June, followed by additional reductions in September, October, and December. The central bank implemented another cut in early 2025, setting the rate at 2.9 percent. This marked a significant shift from the previous rate hike cycle, which began in July 2022 when the ECB raised rates to 0.5 percent and subsequently increased them almost monthly, reaching 4.5 percent by December 2023 - the highest level since the 2007-2008 global financial crisis. How does this ensure liquidity? Banks typically hold only a fraction of their capital in cash, measured by metrics like the Tier 1 capital ratio. Since this ratio is low, banks prefer to allocate most of their capital to revenue-generating loans. When their cash reserves fall too low, banks borrow from the ECB to cover short-term liquidity needs. On the other hand, commercial banks can also deposit excess funds with the ECB at a lower interest rate. Reasons for fluctuations
The ECB’s primary mandate is to maintain price stability. The Euro area inflation rate is, in theory, the key indicator guiding the ECB's actions. When the fixed interest rate is lower, commercial banks are more likely to borrow from the ECB, increasing the money supply and, in turn, driving inflation higher. When inflation rises, the ECB increases the fixed interest rate, which slows borrowing and helps to reduce inflation.

August 2024 marked a significant shift in the UK's monetary policy, as it saw the first reduction in the official bank base interest rate since August 2023. This change came after a period of consistent rate hikes that began in late 2021. In a bid to minimize the economic effects of the COVID-19 pandemic, the Bank of England cut the official bank base rate in March 2020 to a record low of 0.1 percent. This historic low came just one week after the Bank of England cut rates from 0.75 percent to 0.25 percent in a bid to prevent mass job cuts in the United Kingdom. It remained at 0.1 percent until December 2021 and was increased to one percent in May 2022 and to 2.25 percent in October 2022. After that, the bank rate increased almost on a monthly basis, reaching 5.25 percent in August 2023. It wasn't until August 2024 that the first rate decrease since the previous year occurred, signaling a potential shift in monetary policy. Why do central banks adjust interest rates? Central banks, including the Bank of England, adjust interest rates to manage economic stability and control inflation. Their strategies involve a delicate balance between two main approaches. When central banks raise interest rates, their goal is to cool down an overheated economy. Higher rates curb excessive spending and borrowing, which helps to prevent runaway inflation. This approach is typically used when the economy is growing too quickly or when inflation is rising above desired levels. Conversely, when central banks lower interest rates, they aim to encourage borrowing and investment. This strategy is employed to stimulate economic growth during periods of slowdown or recession. Lower rates make it cheaper for businesses and individuals to borrow money, which can lead to increased spending and investment. This dual approach allows central banks to maintain a balance between promoting growth and controlling inflation, ensuring long-term economic stability. Additionally, adjusting interest rates can influence currency values, impacting international trade and investment flows, further underscoring their critical role in a nation's economic health. Recent interest rate trends Between 2021 and 2024, most advanced and emerging economies experienced a period of regular interest rate hikes. This trend was driven by several factors, including persistent supply chain disruptions, high energy prices, and robust demand pressures. These elements combined to create significant inflationary trends, prompting central banks to raise rates in an effort to temper spending and borrowing. However, in 2024, a shift began to occur in global monetary policy. The European Central Bank (ECB) was among the first major central banks to reverse this trend by cutting interest rates. This move signaled a change in approach aimed at addressing growing economic slowdowns and supporting growth.

Abstract

The overriding aim of the SDA Priority surveys is to provide relevant statistical information on the socio-economic effects of structural adjustment policies being implemented by the government and in particular how such policies affect living standards at the household level. The Priority survey is a household based survey but data was also collected at the individual level. The survey has two primary objectives. The first is to provide a quick identification of policy target groups. The second is to provide a mechanism, whereby key socio-economic variables can be easily and regularly produced to describe and monitor the well-being of different groups of households.

The Priority Survey places emphasis on five basic needs indicators. These are education, health, nutrition, food expenditure and housing. Structural adjustment programs involve the implementation of a series of policy measures designed to correct imbalances in the national economy and to promote a desirable or targeted economic growth. The type of structural adjustment programs that have been carried out in Zambia include:

• Introducing market foreign exchange rates • Liberalizing interest rates • Privatizing state owned companies • Liberalizing foreign trade so that domestic and international producers compete • Liberalizing domestic trade by removal of price controls on commodities • Removal of subsidies on consumption and production • Reforming and restructuring the civil service

These measures and other adjustments to the national economy have impacts on the Zambian society and the Priority Survey is intended to highlight and monitor these impacts. Structural adjustments involve both fiscal and monetary reforms which seek to redress imbalances in the economy. Fiscal policy includes such issues as reduction in Government expenditure and tax reform while monetary reforms involve such issues as reducing money supply and liberalizing the interest and foreign exchange rates. In highlighting the social dimensions of adjustment attention is generally focused on the identification of the poor and most vulnerable groups in the population.

Geographic coverage

Coverage was national. The Priority survey II covered both urban and rural parts of Zambia in all the nine provinces. In all 651 Standard Enumeration Areas were selected across the country. In urban areas the same 250 Standard Enumeration Areas (SEAs) that were selected for Priority survey I were canvassed in Priority survey II. In Rural areas 401 Standard Enumeration Areas were covered based on the CSO Agriculture post harvest (1993) survey.

In urban SEAs 25 households were selected in each sample SEA. In the rural areas 10 households were selected from the 20 sample households in the 401 sample SEAs earmarked for the 1993 Agriculture survey. In all about 10,000 households were interviewed in Priority survey II.

In the Priority survey I on which the PSII sample is based, a three stage stratified random sample method was used for the survey. The first stage constituted primary sampling units (PSUs) which were Census Supervisory Areas, (CSA), delineated for the 1990 Census of Population, Housing and Agriculture. Standard Enumeration Areas (SEAs) were second stage sampling units, while households formed third-stage sampling units. The household as well as individuals formed the units of analysis. The sampling frame consisted of 4,144 CSAs and 12,999 SEAs.

Analysis unit

• Households
• Individuals

Universe

The sample frame of this survey was the list of SEAs developed from the 1990 Census of Population, Housing and Agriculture. The eligible household population constisted of all civilian households. Excluded from the survey were the institutional population in (hospitals, boarding schools, prisons, hotels, refugee camps, orphanages, military camps and bases, etc) and diplomats accredited to Zambia in embassies and high commissions. However, private households living around these institutions were enumerated such as teachers whose houses are on school premises and doctors and other workers living on hospital premises.

Kind of data

Sample survey data [ssd]

Sampling procedure

The PSII covered all the nine (9) provinces of Zambia, both rural and urban areas on a sample basis. The domains of study and data disaggregation for this survey were:- - Rural - Urban - Province

Stratification The whole country is divided into nine provinces that are subdivided into 57 districts by the Local government Administration. Central Statistical Office has delineated the Districts into Census Supervisory Areas and then CSAs into Standard Enumeration Areas. A CSA has about three SEAs in it.The sample standard enumeration areas were selected with a probability proportional to the number of inhabitants in each area.For urban areas stratification was done based on the main type of housing in the area. Urban households were classified into low, medium and high cost areas. In the case of rural areas stratification was done based on the scale of Agricultural activity. Rural households were classified into small scale, medium scale, large scale and non-agricultural. In PSII small scale and non-agricultural households were lumped together as one since the rural sample was a sub-sample of the sample areas selected for the agriculture survey and that is how the agriculture survey lumped the two. The large scale agricultural households were left out of the PSII analysis because of the small number that were interviewed.

Sampling Frame The sampling frame consisted of 4,144 CSAs and 12,999 SEAs. It was obtained from the 1990 Census of Population and Housing. The SEAs in the frame were sorted by rural/urban and by low cost, medium cost and high cost areas. All in all, the frame gives information on the population size of each SEA throughout the country, the number of households, information about rural/urban, and low cost, medium cost and high cost areas.

Sample Size In all , 651 Standard Enumeration Areas were selected across the country. In urban areas the same 250 Standard Enumeration Areas (SEAs) that were selected for Priority survey I were canvassed in Priority survey II. In Rural areas 401 Standard Enumeration Areas were covered based on the CSO Agriculture post harvest (1993) survey. In urban SEAs 25 households were selected in each sample SEA. In the rural areas 10 households were selected from the 20 sample households in the 401 sample SEAs earmarked for the 1993 Agriculture survey. In all about 10,000 households were interviewed in Priority survey II. In the Priority survey I on which the PSII sample is based, a three stage stratified random sample method was used for the survey. The first stage constituted primary sampling units (PSUs) which were Census Supervisory Areas, (CSA), delineated for the 1990 Census of Population, Housing andformed third-stage sampling units. The household as well as individuals formed the units of analysis.

Sample Selection Sampling with probability proportional to size (PPS) was used in selecting the sample of CSAs and SEAs. In selecting CSAs and SEAs the measure of size was the cartographic mapping population estimates.

Allocation Allocation of SEAs to provinces was done using the Probability Proportional to Size (PPS) method.This means that the total sample size was proportionally allocated to each province according to the population in the province. First, allocation was done on provinces considering the population share of each province from the total population. Then allocation was done at district level in the same way. Within the districts, allocation was done by rural/urban by the same method. Within the urban strata, allocation was done by low cost, medium cost, and high cost areas using the same method. (See Appendix I).

Listing In each selected SEA, households were listed and each household given a unique sampling serial number. A circular systematic sample of households was then selected. Vacant residential housing units and non-contact households were not assigned sampling serial numbers.

Sampling deviation

Due to logistical problems the actual number of SEAs enumerated in rural strata was 392 and 250 in urban areas.

Mode of data collection

Face-to-face [f2f]

Research instrument

Two basic instruments were used in collecting data during the survey: the listing form and the main questionnaire.

Cleaning operations

Training: The provincial data entry operators were trained for a week to facilitate capturing of the Priority survey data. A total of 18 data entry operators were trained.

For data entry the IMPS (Integrated Microcomputer Processing System) software designed by the U.S. Bureau of Census was used. This software contains three components; CENTRY -for data entry and verification, CONCOR - for range, skip and consistency checks in the data and CENTS - for tabulation. Only the first two (CENTRY and CONCOR) components of IMPS were used.For tabulation and analysis the SAS (Statistical Analysis System) software was used. This software was developed in the U.S.A. as well. The software has the advantage of being able to handle large amounts of data and also to compute statistical and complex tables. For typing the report, the Word Perfect software was used. For Anthropometry EPI-INFO was used.

Data entry was done in the respective nine provinces by the provincial data entry operators. Central Statistical Office has decentralised its computer data capturing process since 1991. After all the data was captured in the provinces, it was brought to the headquarters office in Lusaka as well as the questionnaires

Inflation in Argentina was 54 percent in 2019, before falling to 42 percent in 2020. Despite Argentina's fluctuating economic instability over the twentieth century, the largest factor in its current economic status is the legacy of poor fiscal discipline left by the economic depression from 1998 to 2002. Although data is not available from 2014 to 2016, Argentina's inflation rate has been among the highest in the world for the past five years.

What causes inflation?

Inflation is a rise in price levels for all goods. Major causes of inflation include an increase in money supply, low central bank interest rates, and expectation of inflation. In a country such as Argentina, the expectation can be one of the biggest obstacles. People expect inflation to be high and demand increasing wages, and firms continue raising prices because they expect the costs of inputs to increase. Banks follow suit, charging high interest rates on fixed deposits.

Effects of inflation

Inflation negatively affects savers. 100 Argentinian pesos in 2018 was worth just under 75 pesos in 2019, after adjusting for the 34 percent inflation rate. Similarly, frequently changing prices has its own inherent cost, called “menu cost” after the price of printing new menus. Inflation will also have a positive effect on national debt when that debt is denominated in Argentinian pesos, because the pesos will be cheaper when the loan matures. However, the majority of Argentina’s debts are in foreign currency, which means that inflation will make these debts larger in peso terms.

As of October 16, 2024, the yield for a ten-year U.S. government bond was 4.04 percent, while the yield for a two-year bond was 3.96 percent. This represents an inverted yield curve, whereby bonds of longer maturities provide a lower yield, reflecting investors' expectations for a decline in long-term interest rates. Hence, making long-term debt holders open to more risk under the uncertainty around the condition of financial markets in the future. That markets are uncertain can be seen by considering both the short-term fluctuations, and the long-term downward trend, of the yields of U.S. government bonds from 2006 to 2021, before the treasury yield curve increased again significantly in 2022 and 2023. What are government bonds? Government bonds, otherwise called ‘sovereign’ or ‘treasury’ bonds, are financial instruments used by governments to raise money for government spending. Investors give the government a certain amount of money (the ‘face value’), to be repaid at a specified time in the future (the ‘maturity date’). In addition, the government makes regular periodic interest payments (called ‘coupon payments’). Once initially issued, government bonds are tradable on financial markets, meaning their value can fluctuate over time (even though the underlying face value and coupon payments remain the same). Investors are attracted to government bonds as, provided the country in question has a stable economy and political system, they are a very safe investment. Accordingly, in periods of economic turmoil, investors may be willing to accept a negative overall return in order to have a safe haven for their money. For example, once the market value is compared to the total received from remaining interest payments and the face value, investors have been willing to accept a negative return on two-year German government bonds between 2014 and 2021. Conversely, if the underlying economy and political structures are weak, investors demand a higher return to compensate for the higher risk they take on. Consequently, the return on bonds in emerging markets like Brazil are consistently higher than that of the United States (and other developed economies). Inverted yield curves When investors are worried about the financial future, it can lead to what is called an ‘inverted yield curve’. An inverted yield curve is where investors pay more for short term bonds than long term, indicating they do not have confidence in long-term financial conditions. Historically, the yield curve has historically inverted before each of the last five U.S. recessions. The last U.S. yield curve inversion occurred at several brief points in 2019 – a trend which continued until the Federal Reserve cut interest rates several times over that year. However, the ultimate trigger for the next recession was the unpredicted, exogenous shock of the global coronavirus (COVID-19) pandemic, showing how such informal indicators may be grounded just as much in coincidence as causation.

Inflation is generally defined as the continued increase in the average prices of goods and services in a given region. Following the extremely high global inflation experienced in the 1980s and 1990s, global inflation has been relatively stable since the turn of the millennium, usually hovering between three and five percent per year. There was a sharp increase in 2008 due to the global financial crisis now known as the Great Recession, but inflation was fairly stable throughout the 2010s, before the current inflation crisis began in 2021. Recent years Despite the economic impact of the coronavirus pandemic, the global inflation rate fell to 3.26 percent in the pandemic's first year, before rising to 4.66 percent in 2021. This increase came as the impact of supply chain delays began to take more of an effect on consumer prices, before the Russia-Ukraine war exacerbated this further. A series of compounding issues such as rising energy and food prices, fiscal instability in the wake of the pandemic, and consumer insecurity have created a new global recession, and global inflation in 2024 is estimated to have reached 5.76 percent. This is the highest annual increase in inflation since 1996. Venezuela Venezuela is the country with the highest individual inflation rate in the world, forecast at around 200 percent in 2022. While this is figure is over 100 times larger than the global average in most years, it actually marks a decrease in Venezuela's inflation rate, which had peaked at over 65,000 percent in 2018. Between 2016 and 2021, Venezuela experienced hyperinflation due to the government's excessive spending and printing of money in an attempt to curve its already-high inflation rate, and the wave of migrants that left the country resulted in one of the largest refugee crises in recent years. In addition to its economic problems, political instability and foreign sanctions pose further long-term problems for Venezuela. While hyperinflation may be coming to an end, it remains to be seen how much of an impact this will have on the economy, how living standards will change, and how many refugees may return in the coming years.

At the end of 2023, Zimbabwe had the highest inflation rate in the world, at 667.36 percent change compared to the previous year. Inflation in industrialized and in emerging countries Higher inflation rates are more present in less developed economies, as they often lack a sufficient central banking system, which in turn results in the manipulation of currency to achieve short term economic goals. Thus, interest rates increase while the general economic situation remains constant. In more developed economies and in the prime emerging markets, the inflation rate does not fluctuate as sporadically. Additionally, the majority of countries that maintained the lowest inflation rate compared to previous years are primarily oil producers or small island independent states. These countries experienced deflation, which occurs when the inflation rate falls below zero; this may happen for a variety of factors, such as a shift in supply or demand of goods and services, or an outflow of capital.

In economics, the inflation rate is a measure of the change in price of a basket of goods. The most common measure being the consumer price index. It is the percentage rate of change in price level over time, and also indicates the rate of decrease in the purchasing power of money. The annual rate of inflation for 2023, was 4.1 percent higher in the United States when compared to the previous year. More information on inflation and the consumer price index can be found on our dedicated topic page. Additionally, the monthly rate of inflation in the United States can be accessed here. Inflation and purchasing power Inflation is a key economic indicator, and gives economists and consumers alike a look at changes in prices in the wider economy. For example, if an average pair of socks costs 100 dollars one year and 105 dollars the following year, the inflation rate is five percent. This means the amount of goods an individual can purchase with a unit of currency has decreased. This concept is often referred to as purchasing power. The data presents the average rate of inflation in a year, whereas the monthly measure of inflation measures the change in prices compared with prices one year ago. For example, monthly inflation in the U.S. reached a peak in June 2022 at 9.1 percent. This means that prices were 9.1 percent higher than they were in June of 2021. The purchasing power is the extent to which a person has available funds to make purchases. The Big Mac Index has been published by The Economist since 1986 and exemplifies purchasing power on a global scale, allowing us to see note the differences between different countries currencies. Switzerland for example, has the most expensive Big Mac in the world, costing consumers 6.71 U.S. dollars as of July 2022, whereas a Big Mac cost 5.15 dollars in the United States, and 4.77 dollars in the Euro area. One of the most important tools in influencing the rate of inflation is interest rates. The Federal Reserve of the United States has the capacity to make changes to the federal interest rate . Changes to the rate of inflation are thought to be an imbalance between supply and demand. After COVID-19 related lockdowns came to an end there was a sudden increase in demand for goods and services with consumers having more funds than usual thanks to reduced spending during lockdown and government funded economic support. Additionally, supply-chain related bottlenecks also due to lockdowns around the world and the Russian invasion of Ukraine meant that there was a decrease in the supply of goods and services. By increasing the interest rate, the Federal Reserve aims to reduce spending, and thus bring demand back into balance with supply.

In December 2024, the inflation rate in Russia stood at around 9.5 percent compared to the same month in the previous year, showing an increase. The rate has been rising since October 2024. The highest rate during the observed period was recorded in April 2022, at 17.8 percent. The term inflation means the devaluation of money caused by a permanent increase in the price level for products (consumer goods, investment goods). The Consumer Price Index (CPI) shows the price development for private expenses and shows the current level of inflation when increasing. Russia's economy, an outlook The Russian economy was expected to grow by 1.6 percent in 2025 despite the Western sanctions over the war in Ukraine that began in February 2022. At the same time, consumer prices were projected to grow by around five percent in 2025 relative to the previous year. In 2024, the inflation rate was estimated at 7.9 percent. Prices in Russia Russia’s economy is highly dependent on and affected by the price of oil. The price of the Urals crude oil stood at approximately 62 U.S. dollars per barrel in December 2024, having demonstrated an increase from the previous month. The highest producer price index (PPI) was recorded in the electricity and gas supply sector, with a price growth rate of over 12 percent in September 2024.