Supply shocks are back, and four central banks won't cut through them
The Bank of England warns wage disinflation is stalling, the Bank of Japan says the policy phase has changed, Hungary holds at 5.50% while cutting its inflation target, and the ECB — which hiked in September — faces 3.8% headline inflation.
- Bank of England policymaker Megan Greene said wage disinflation is stalling and likely to stabilize closer to 3.5% than 3%, with less labour market slack than some indicators suggest, and advocated a proactive stance against second-round inflation risks. m:…5473
- Bank of Japan Governor Ueda said the policy phase has changed to stabilizing underlying inflation at 2%, and that the bank intends to continue raising the policy interest rate; AI-related demand is firmer than initially anticipated. m:…9090
- Hungary's central bank held its base rate at 5.50% on October 20 and cut its inflation target to 2.5% effective January 1, 2028, with September inflation at 1.6%. m:…3991
- The ECB raised key interest rates by 25 basis points in September, with euro-area headline inflation at 3.8% that month. m:…1742
- Greene noted wholesale gas prices are close to triple their level at the start of 2026, and household inflation expectations picked up to 4.5% short-term and 4.3% longer-term in September. m:…5473
One message, four desks
Four central-bank items published October 20 converge on the same diagnosis: supply shocks are back, and rate cuts cannot fix them. The Bank of England's Megan Greene gave a speech framed around whether labour-market slack can mitigate the latest supply shock. Hungary's central bank held rates citing energy price risks. Bank of Japan Governor Ueda told a G20 press conference that Middle East tensions and AI demand were on the table. And the ECB's Christine Lagarde, in her IMFC statement, confirmed the Governing Council raised key rates by 25 basis points in September — a move confirmed in the ECB's own published September decision. No one is reaching for the easing lever. m:…5473 m:…3991 m:…9090 m:…1742
The thread connecting them is energy. Greene pointed to geopolitical tensions in the Strait of Hormuz and the Bab el-Mandeb Strait keeping energy prices high and volatile, with wholesale gas prices close to triple their level at the start of 2026. The Magyar Nemzeti Bank cited high global oil and gas prices on geopolitical tensions. The latest supply shock is no longer new, but its second-round effects are what every one of these policymakers is now managing. m:…5473 m:…3991
London: no relief from slack
Greene's argument, delivered at the LSE, is that the Bank cannot count on labour-market slack to do the disinflationary work. She said the wage disinflation process is stalling and likely to stabilize closer to 3.5% than 3%, with one-year-ahead wage expectations leveling off at 3.4% in the Decision Maker Panel survey. There is, in her view, less labour market slack than some indicators suggest — which raises the risk of second-round effects — and she advocated a proactive monetary policy stance to lean against them. m:…5473
The data she cited cuts both ways, which is the point: private-sector regular wage growth was 3.0% in August on one measure and 4.4% in September on another, with Greene placing more weight on the administrative RTI data. Household inflation expectations picked up to 4.5% for the short term and 4.3% for the longer term in September. Her warning is that mixed signals are not the same as reassuring ones. m:…5473
Tokyo: the phase has changed
At an October 16 G20 press conference, Governor Ueda said the Bank of Japan's policy phase has changed: the major goal is now stabilizing underlying inflation at around 2%, with underlying inflation approaching that level. He said the bank intends to continue raising the policy interest rate, with the timing and pace decided on economic, price, and financial conditions. The new Outlook Report lands October 30. m:…9090
One line deserves attention from anyone allocating to Japan: AI-related demand is firmer than the Bank of Japan initially anticipated. The same AI capex wave financing data centers in the U.S. is showing up in the BoJ's demand assessment — a supply-side force on prices that, again, rate cuts cannot fix and rate hikes can only lean against. m:…9090
Budapest holds, Frankfurt hikes
Hungary's Monetary Council kept the base rate at 5.50% at its October 20 meeting, with the overnight deposit rate at 4.50% and the collateralized loan rate at 6.50%. The more interesting move was on the framework: the bank will cut its inflation target to 2.5% starting January 1, 2028. September inflation stood at just 1.6% — but the bank's own forecast has the annual average rising to 3.1% in 2027, with drought-hit agriculture slowing growth. My read: holding at 5.50% while cutting the target is the hawkish lean — the bar for future easing just got higher. m:…3991
And Frankfurt: Lagarde's IMFC statement confirms the ECB raised key interest rates by 25 basis points in September, with euro-area headline inflation at 3.8% that month and core at 2.5%. The ECB's growth projections — 0.9% in 2026, 1.4% in 2027, 1.5% in 2028 — describe an economy resilient enough to take the medicine. Four central banks, four different economies, one posture: the supply shock playbook is back. m:…1742
What is still unresolved
- Greene's proactive stance is her view; whether the MPC majority shares it will show in the next Bank Rate decision.
- The Bank of Japan's October 30 Outlook Report will put numbers on the new phase — the press conference gave direction, not a path.
- The MNB's rationale for cutting its inflation target to 2.5% from January 2028 was not in the press release claims.
- With euro-area headline inflation at 3.8% in September, the ECB's next move — and how long it holds — is the open trade.
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