Which is more painful, no jobs or lower real wages?

If we believe Economists - higher inflation lowers the value of debt - more investment spending could further fuel demand and prices which could reinforce inflation which could be hard to control with rate hikes because it is more profitable to invest when the cost of capital is low or there are high real interest rate expectations... Higher price expectations or real interest rates could also reduce supply... Rate hikes and higher real interest rate expectations from a low real interest rate base could increase investment spending and could further reinforce rate hikes...     

According to the Fed's model, higher interest rates are likely to lower demand, due to high unemployment, and increase supply lowering prices and expectations. But, higher borrowing costs could also lower supply, due to high unemployment, and increase demand and prices or inflation and expectations. According to the former model, prices would go down and, in the latter, they would go up. We have both views. Expectations could be factored into the current prices or inflation if the near-term price expectations are high/low. 

Rate Hikes and expectations are likely to lower spending. People would be rewarded if they delay spending and buy/invest at lower prices since there are lower price expectations due to rate hikes and expectations. Lower demand and higher supply could reinforce low prices, and lower price expectations could be self-perpetuating.   

Any interpretation of a Recession would normally involve a base year (=100), generally the last quarter and the same quarter of last year's GDP growth rates, it is the growth rate calculated over the last quarter/same quarter of last year's growth rate which may show a negative growth rate, but the money or nominal growth could be quite positive... It depends upon the low or high base year's growth rate. A high base year shows low current prices and vice versa. People shall take investment decisions based on the money or nominal values of GDP. It is important because it helps form expectations and shapes investment decisions. A low current price and growth rates mean higher price and growth expectations and vice versa.

 

A large part of inflation is due to the low base effect last year which is going to correct as the base year normalizes. Monetary Policy is more of a supply-side tool that affects supply directly through the borrowing cost. Higher borrowing cost means lower supply and higher prices, it reduces the productivity of capital which means further higher prices and could also be self-fulfilling. This is supply-side induced inflation which could not be controlled by rate hikes or higher borrowing costs because that would lower the supply and further increase demand which could reinforce higher prices. Higher borrowing costs could be self-fulfilling. 

 

A neutral rate or neutral real rate means zero real or inflation-adjusted interest rate at full employment, at which there is neither inflation nor disinflation. A higher neutral real rate could restrict the expansion and growth itself; interest rate and growth have a direct and significant relationship. The objective is to balance the economy at a neutral rate at full employment. 

    

There is no mention of the unemployment or jobless rate in the RBI policy, though rate hikes may further increase joblessness. Due to rate hike expectations, the GDP growth expectations are likely to go down. All rating agencies have reduced growth forecasts... Lower price expectations would further delay spending and growth... INDIA's growth is going to take a hit after the rate hike spree. As long as the discussion on unemployment (rate) is not done it is difficult to predict inflation and inflation expectations. The Phillips curve shows that an economy faces a tradeoff between inflation and unemployment. 

Higher interest rates and lower prices or business cost is good for the margins and earnings of the companies. It would make them more productive and competitive and increase demand. Many people do not understand economics which is why 75% of businesses fail. People invest when prices or inflation are high and then prices start falling when the supply increases, law of supply, when they shall invest when prices or inflation are significantly low, bottom fishing could increase low price expectations could reinforce low prices, and vice versa. People should invest or buy when prices are low and expectations of price are high because low prices increase demand and price expectations, the law of demand. If people follow the law of demand and supply and keep expectations in mind while investing it would help stabilize the markets and would help everyone. Low prices would be bought and higher prices would increase supply which would help stabilize the markets.

 

Higher inflation means higher Margins and Earnings. Like investors factor in higher wages in Prices and Margins, the same is true for interest rates, they are factored in Prices and Margins, too, when demand is high. Businesses have an excuse to raise Prices. Higher Margins and earnings are good for stock prices. 

 

The Russia-Ukraine war is more responsible for the current situation and policy. Inflation and inflation expectations due to war have shot up. Inflation expectations in INDIA are higher than in the US and Europe which could keep inflation ticking up in a supply-constrained perspective. Prior to the War, the inflation was due to the low base effect when the Covid hit which the war only aggravated. 

GDP at constant prices has decreased from Q1 to Q2, but the rate of growth of GDP in Q2 has increased by 13.5% because of a low base last year. The real GDP after accounting for prices or deflators has shown a downtrend. GDP Constant Prices in India decreased to 36851.25 INR Billion in the second quarter of 2022 from 40780.25 INR Billion in the first quarter of 2022. 

 

This is a short-term view of the economy which is unlikely to create rational expectations for which we need to take a long-term view and a more holistic view for the sake of relativity. These are absolute numbers with little significance for creating expectations.   

INDIA's banking sector is constrained by foreign capital, as it is protected by a lower FDI limit, which further constrains the lending rate which is the highest among major economies. FDI in banking must be liberalized further to bring in foreign capital and lower the lending rate. It would add to the productivity of capital, and lower borrowing cost is sine-quo-non for improving the supply side. Exports are competing with countries where borrowing cost is very low compared to INDIA. Indian bond markets must be mature enough to attract foreign capital inflows. 

No matter what the RBI does, inflation is increasing by 10% every year and 80% in the last 8 years. GDP Deflator in India increased to 160.10 points in 2022 from 146.10 points in 2021 

INDIA is already a superpower with the most populous country tag. Human capital precedes every other form of capital. Developed countries' population is aging and slowing down, but INDIA has the youngest population. But this could get wasted if not provided with education and skills, and jobs. 

The labor-force participation rate has gone down from 64% during UPA to 46% under BJP. Unemployment has increased during BJP. LFPR has reduced by 50% during BJP.    

India scored 40 points out of 100 on the 2021 Corruption Perceptions Index reported by Transparency International. India is the 85 least corrupt nation out of 180 countries, according to the 2021 Corruption Perceptions Index reported by Transparency International. The above figures remain more or less the same as under the UPA regime. INDIA remains one of the most corrupt countries. 

What about wealth distribution? As per the latest World Inequality Report 2022, India is a “poor and very unequal country, with an affluent elite,” where 57 percent of the national income is held by the top 10 percent, while the share of the bottom 50 percent is merely 13 percent in 2021.08-Dec-2021. The govt shall distribute some shares of PSUs to the poor people and make them shareholders in PSUs for better wealth distribution. 

A sufficient and constant supply of electricity is indispensable for the economic development of highly developed industrialized countries. This applies to all areas of a modern economy, beginning with the production sector and including transportation and the service sector all the way down to private households. INDIA's electricity production has hit an all-time low in the past two years and is too costly for families and businesses. How a nation could grow without electricity? 

The Happiness Index of the World Happiness Report (WHR) indicates that India's rank has deteriorated over the years. In the 2022 World Happiness Report, India ranked 136th among 146 countries, while in 2021, it ranked 139th among 149 countries. In 2020, India's rank was 144th, while in 2019, India was ranked 140th. In the 2018 report, it ranked 133rd and in 2017, it ranked 122nd. India was ranked 118th and 117th out of 157 and 158 countries respectively in the 2016 and 2015 reports. The happiness of the people must increase. INDIA is deteriorating on the happiness index... The average tax rate on Indians has gone up and real wages are down. Why not worry about ourselves? 

High public deficit and the resulting debt to GDP ratio and higher inflation and higher interest rate and interest rate payments pose a threat to macro-stability. Higher inflation and expectations point to reckless public spending. INDIA is among the world's worst inflation expectations nations. Debt and then more debt and taxes to pay the debt could kick off a virtuous cycle of low private sector demand.  

The opposition shall shun polarisation, appeasement, and vote bank politics and work for the Welfare of all. Shall bring policies that uplift everybody without dividing the economy and society. This approach must replace the politics of hate and violence. At least this appears coherent and is close to the truth that we must realize. Work for All... 

Opposition must ask the common man what change he feels Modiji has brought to their lives and come up with ideas that could make people happy. What has happened to their economic health and what has happened to the taxes, are they better-off or worse-off...? It's time to let the common man speak and politicians listen to their ideas... and provide solutions... 

Cong shall adopt a scientific approach to convince the Public to vote for the Party... A Data-driven approach... During the Pad-Yatra they must also talk to people to know about their expectations... This time let people speak and the govt provide feedback.  

Modi govt did not think of productivity and competitiveness when it reaped a windfall from excise duty and transport costs swelled for business and people. The credit for lower excise duty goes to the opposition.      

Congress must demand the inclusion of fuel in GST. In INDIA prices are rising faster than wages and incomes. An increase in prices and expectations is self-fulfilling - higher wages result in a wage-price spiral - in face of supply-side constraints like oil/fuel and food inflation. Real wages would increase when prices or inflation would down with an increase in supply or productivity or competitiveness due to low cost and higher standard of living. 

Modiji Pledged to reduce middlemen from the food supply to double Farmers' income which has been delayed by many years, and higher prices are not reaching the Farmers. Higher prices of other goods and services have resulted in poor Farm Real-Incomes. Food inflation could help increase wages and incomes in the Farm Sector, and demand and growth, it is the biggest provider of jobs in the country but is vastly unorganized. Too much labor force in the agriculture sector has depressed Farm Incomes. Though its share in GDP has been low compared to the past. Some food inflation is good for the Farmers. 

 

It is Difficult to Predict Inflation...

Expectations are important for managing spending and price stability, when prices or inflation and expectations are high, lower spending could help contain or lower prices, though, when prices and expectations are low, higher spending could help increase prices. The RBI could forward guide that agents shall reduce or increase spending by forecasting prices even after the inflation target. It could help increase returns on investment. Because if prices increase or decrease as per expectations it could help time investment spending and consumption, too. If, everybody spends according to forecast or expectations about the prices to stabilise it there could be stability in the price level or inflation and profits could be maximised. If everybody follows the central banks' decision or forecast more price expectations could be actualised. 

 

Prices and growth depend upon spending which depends upon price or inflation expectations. Higher expectations increase the spending which could be self-fulfilling and increase current prices and vice versa. Disinflation or lower inflation expectations could also delay demand and increase supply reinforcing disinflation... and low growth... Stable inflation expectations could help prices and macro-economic and growth stability. 

INDIA has the highest inflation expectations among the major economies. Higher than the official inflation target of 4% in the medium term by the RBI. The divergence between the two is unexplained and could result from peoples' ignorance about the RBI's pledge. 11% inflation expectations are too much high compared to the official target. Inflation has barely increased 10% in the recent past.  

INDIA lacks a good social security system - healthcare and unemployment benefits - which are important for the well-being of all. 

The government has raised a windfall from oil duties in the past 5 yrs when the prices reached $25 per barrel which is an unprecedented amount. It did not let lower prices reach the public. Which also lowered productivity by increasing the transport cost and inflation and higher interest rates. 

Modi govt did not think of productivity and competitiveness when it reaped wind fall from excise duty and transport cost swelled for business and people. The credit of lower excise duty goes to the opposition. 

Lower inflation, higher real wages and incomes, and more purchasing power for the public. Lower inflation expectations could delay demand and increase supply reinforcing low current prices and higher purchasing power. The value of money shall increase over time. Higher interest rate expectations and lower demand and price expectations could increase supply which is what we want. Currently, at this point of time higher interest rates are good for the economy.

 

Too much rate hikes could increase NPAs of NBFCs. Last time when Urjit Patel increased interest rates in 2018 due to rising oil prices he had to resign. The animity between the govt and central banks over rate hikes is common. 

As far as economic policy is concerned Manmohan Singh's regime was a lot better. During Singh's period wages and incomes increased 107% and inflation increased 102% and during the BJP wages and incomes increased 29% and inflation increased 57%. Real wages and incomes suffered during the BJP. INDIA has become poorer compared to the last regime... 

In the face of heightened geo political tension both demand and supply may go down which means further delay in achieving the inflation target. If a competent organisation like the Federal Reserve cannot gauge prices, it is tough for anybody to predict what will happen to the markets under uncertainty. Stock markets too depend upon the demand and supply of the stocks which is exceedingly difficult to predict. They could change anytime. Bulls are followed by bears and bears are followed by bulls. 

If INDIA buy's Russian oil and add to its trade surplus and capacity to continue war on Ukraine, 
it is in the hands of the govt to tackle external problems, too, war has been the sole reason for higher inflation and inflation expectations. The govt is trying to boost exports when there is environment of gloom outside the country which is not going to work until the external situation improves. This time the problem is imports and depreciating currency and higher spending and debt. INDIA debt to GDP ratio has deteriorated during the last 8 yrs of BJP while it reduced under the UPA since 2004 to 2014 (tradingeconomics.com) ... Even the govt does not have the unemployemnt numbers, which is important for the RBI and policymaking and forming expectations about inflation... Labourforce participation rate has gone down from 64% during UPA to 46% under BJP. Unemployment has increased during BJP. LFPR has reduced 50% during BJP. 

If the discussion on unemployemnt (rate) is not done it is difficult to predict the inflation and inflation expectations. Phillips curve shows that an economy faces trade-off between inflation and unemployment. 

High public deficit and the resulting debt to GDP ratio and higher inflation and higher interest rate and interest rate payments pose a threat for macro-stability. Higher inflation and expectations point to reckless public spending. INDIA is among the worlds' worst inflation expectations nations. Debt and then more debt and taxes to pay debt could kick off a cycle of low private sector demand. 

INDIA is a super-power; it has the 2nd largest workforce after China and the world's fastest growing major economy. Its nominal GDP is around Rs 203 trillion and the US nominal GDP is $ 20 trillion. Discounting for the exchange rate INDIA's GDP is 10 times larger than the US GDP. Superpower is a state of Mind. It is independent to support its people. Its sovereignty is intact. There are also many poor people in the US around 10% people are still poor in the US. INDIA has more land area than the US. INDIA is a superpower though people do not realise it...

Demonetisation is the biggest scandal and a far-reaching example of extreme corruption during the current regime, nobody got nothing, and despotism is more dangerous than nepotism. 

If China could clock double-digit growth for more than a decade, INDIA too could achieve 9% GDP growth rate with conducive policy reinforcement. China has achieved this growth despite protectionism... INDIA is a Democracy and is more open and market-oriented. Free Market Economies tend to flare better than protected systems. Democracy means public welfare is top most priority and equality of oppourtunity, anybody could become President and PM.

 

Rate hikes by the Fed shall be seen as an attempt to contain the effect of rising inflation by rewarding savings to contain real returns and to save more to lower spending and inflation, those who would defer spending would also be rewarded through higher real wages... Rate hikes are a signal to lower prices and expectations... If people follow the Fed ie when it wants spending, both investment and consumption, people spend and when it wants less spending, people spend less, it would help control the price level or inflation would also increase returns. 

It is not that the Fed could increase interest rates indefinitely as people and investors could start defaulting on their debt obligations... There is a limit... NPAs could rise... 

Investors must realise that delaying demand could increase returns which could reinforce low current prices. Consumers and investors must realise that they would be rewarded if they delay spending and increase spending when prices go low. Fed is now determined to lower inflation and is ready to sacrifice some employment and growth and even a slowdown would not stop it, prices would come down in the short run that is a certainty. People must defer spending to gain from interest rate hikes and lower price expectations. 

Economists concentrate on business cycles, busts follow booms and booms follow busts... (Revised)...

Prices and growth and expectations have quite a relationship... Low prices mean low growth and vice versa... The objective is to stablise prices and growth at full employment... Prices or inflation expectations affect spending and growth, too, lower price expectations delay demand and increase supply vice-versa... If we have high inflation expectations it means spending and growth would increase and the chance of a recession is low and vice versa. Though, if there is low inflation it also means that spending and growth would increase... Otherwise, if we have low inflation expectations it would delay demand and increase supply and if we have high prices it means that spending and growth could go down ie there is the possibility of a slowdown or recession...

Prices or inflation and unemployment decide whether we are in a recession... A recession is marked by low inflation and high unemployment and booms coincide with high inflation and low unemployment... Price expectations could tell that we are approaching a recession or a slowdown... Higher price expectations mean that demand would increase and supply could go down while lower price expectations mean that supply would increase and demand could go down... Disinflation or lower price expectations could signal a slowdown or recession...

Inflation and expectations in the face of supply-side disruption show that we are nowhere near a slack and growth has achieved its pre-covid level...

INDIA's productivity has been severely hit by demo, covid, and, now, war on Ukraine, which is reflected in higher prices and expectations and high-interest rates... A higher cost of capital means lower productivity and considerable delay in $ 5 trillion economy...

If the point is to reduce or control demand and prices, higher prices could themselves be a potent way to do the same and more effectively, instead, of decelerating the whole economy, at once, higher prices mean low demand, but higher price expectations could increase demand and prices... In the UK inflation has increased with rate hikes which means that a higher interest rate could increase inflation because supply could go down...

If the RBI could commit to a strong rupee-dollar exchange rate the foreign exchange inflows could increase... For this they need to increase demand for the rupee, they can settle exports and debt in the rupee... RBI could float rupee-denominated overseas bonds... The internationalisation of the rupee could be an important reform to increase the demand and value of the rupee... It could also help lower domestic and imported inflation and depreciation and depreciation expectations... Lower inflation could also mean productivity and competitiveness could increase...

INDIA is a supply-constrained economy. The RBI's effort shall be to increase supply. Supply might be positively correlated to prices and demand ie when prices and demand increase supply increases, too, and, vice versa. Though, supply is negatively correlated to lower demand and price expectations... Higher prices mean that supply and demand could increase and higher prices and interest rate expectations could lower demand and price expectations and increase supply expectations, which could reinforce lower current prices and vice versa. It doesn't matter much that interest rates are increased or if the RBI does nothing...

 

Investment spending depends upon expectations; it depends on what all other investors are expecting... Investors unconsciously create booms and busts, through the expectations channel... If they expect that the market is going to go up they buy which actually increases the market. And, if they expect that the market is going to go down they sell which actually results in correction. Nonetheless, too much negative or positive exuberance or appreciation and correction could mean that the market has gone irrational or expectations from the market can be classified as irrational... In contrast to other markets, the cost and return in the stock market for everybody are different; investors buy and sell at different prices... According to the rational expectations, the investors shall follow the profit maximization behavior. If everybody buys and sells at the same price everybody's profit could be maximized... Markets are forward-looking they could factor in expectations in the current prices... Too much correction or appreciation means that markets are gone irrational, against this, if expectations are rational markets would show stability, significant corrections would be bought and significant appreciation would be sold, which could make the market stable, moving within price expectations...

 

INDIA has lost its purchasing power by 25%... since 2014... Instead of becoming a $5 trillion the economy has lost its real value by 25% due to inflation and depreciation... But others do not need to pay in Dollars like INDIA... UK, Japan, Europe... They could pay in their own currencies...

If this is the scene the RBI should use capital controls like China... The RBI may use capital controls like China to stop the sudden exodus of foreign exchange... The RBI could also sell bonds to quiescence rupee depreciation since a lower money supply would make the rupee strong, under OMOs...

Masala Bonds could further increase the demand for the rupee... If the RBI really cares for its foreign currency reserves the road goes only through a strong rupee... Appreciation and expectations could increase foreign exchange inflows which are likely to further increase appreciation... Imported inflation and competitiveness could only be contained or increased by a strong currency...

Both appreciation and depreciation are good only to an extent in the short; too much of both is not good... Anything which happens must be only gradual so that people adjust slowly... Depreciation expectations might delay demand for exports, though appreciation expectations might increase demand for exports... INDIA's imports and imported inflation require a strong currency... Lower inflation means higher productivity and competitiveness... INDIA shall follow the US model instead of China...

Rupee depreciation is not natural and bad for imports-exports, too. All currencies have convergence in the exchange rate, and all the big economies' currencies have appreciated with time, including China, except Japan, depreciation would also increase imported inflation and would also make exports uncompetitive due to higher cost and would lower real wages and domestic demand and growth rate. Managing exchange rate is in the realm of Monetary Policy and Fiscal Policy, too. In the long run, INDIA's currency is weakening. For the foreigners' the country is cheap 80 times, but the domestic public pays 80 times more... Expectations from the rupee is that it would depreciate which could also delay demand for exports and further increase depreciation due to less dollar income and higher demand for dollars... RBI is saying that the rupee is market-determined, though it could also decide the exchange rate like it decides the nominal interest rate, the RBI has the sole power to decide the exchange rate.

Fixed exchange rates are not permitted to fluctuate freely or respond to daily changes in demand and supply. The government fixes the exchange value of the currency. For example, the European Central Bank (ECB) may fix its exchange rate at €1 = $1 (assuming that the euro follows the fixed exchange rate). RBI shall adopt a fixed exchange rate system to control imported inflation.

Depreciation and expectations delay export demand... which could increase the trade deficit and imbalance in the Balance of Payments (BoP)-capital and current accounts... INDIA is unlikely to succeed unless there is a stable exchange regime... Higher inflation and capital costs make exports uncompetitive.

A higher interest rate and a strong exchange rate could increase foreign exchange inflows... Both rate cuts and rate hikes are good at the right time. Both are aimed at stabilising the prices and growth. At least this seems consistent. Time consistency of the economic policy is a real problem. Sometimes rate hikes are good and sometimes rate cuts are good for prices and growth stability at full employment...

 

Analyst’s job is to make investors invest more and more on significant corrections, delaying could further destabilise markets... Analysts shall first give priority to existing customers; it would also be good for fresh investors and investment... The problem is to find out ways to change the outcome...

We have learnt this time that when base year's prices or inflation are too low we could expect higher inflation and growth in the next period or future... and, vice versa... This is called the base and debase effect... Negative earnings may not mean that earnings are negative, but only lower compared to last quarter or year... Companies with consistent forecast and actual earnings and with higher earnings in the next period are likely to get higher investments... 

 

US is a relatively rich economy, people could weather higher interest rates, by the way, interest rates are very low given historical rates and emerging market interest rates... 1.75% nominal interest rate and 8% inflation give a real interest rate -6.25 which is at an all-time low... If people find it bottom and think as per the value of debt, inflation decreases the value of debt, and increases investment spending it could further reinforce higher inflation... Higher inflation and interest rate expectations could further reduce supply and increase demand...

The Fed is showing concern not to lower real wages by inflation, but too many rate hikes could vanish employment, too, after all, both, seem inconsistent... To save standard of living they are cutting on jobs, which is not justifiable...

Rate hikes could lower demand and price expectations which could also increase supply... This is clearly a supply-side problem... Rate hikes and lower demand and price expectations could also increase supply... Lower price expectations and higher supply are not good for the stock market, though it may also increase the supply of G&S in the broader economy due to lower demand and price expectations...

The relationship between higher interest rates and inflation is quite significant, both have moved up together... This could be because of higher borrowing costs and lower supply and higher demand, which could reinforce higher prices...

The real interest rate is negative and bottoming out which actually lowers the value of debt that can increase investment demand and spending which could further increase prices... What the central banks are doing is what they are supposed to do, it helps everyone. This is what they are supposed to do. It also helps inflation-adjusted equity returns. It is good for the economy...evidence we have is that the prices or inflation are increasing with rate hikes...

 

The oil prices increase we are seeing is the result of production and supply cuts by OPEC to balance the oil exporting countries' budgets... Importing countries must raise the issue because it affects inflation and their budget estimates, too...

A recession in the US would help ease prices that may help INDIA... A recession could help lower food and fuel inflation and could increase foreign exchange and investment inflows... Lower inflation could increase export competitiveness...

This time the Fed may try selling bonds mixed up with a rate hike of 50 basis points... The Fed may also try quantitative tightening to calm down inflation... Bond selling could help keep rate hikes low...

 

The rate of growth of GDP is negative doesn’t mean that GDP has become negative; it is only the rate of growth of GDP is not as fast as the last quarter or year rate of growth of GDP, though the nominal or money GDP could be quite positive. For instance, if the last quarter GDP is considered 100, a -5% decline would mean that the rate of growth of GDP is only 5% less than the rate of growth of GDP last quarter of the year or only 95% compared to the rate of growth of GDP last quarter or year. This only few people understand and of course the common public, too. But, investors are more significant from the point of view (investment) spending because they have money to speculate on the prices and have the ability to hold on, though consumption spending may also vary. A recession is nothing, but a slowdown in spending of two quarters (may be) which depends upon price expectations and spending, there is also the inverted yield curve idea. The growth rate of GDP and the rate of growth of prices could have quite a relationship; the two-quarters analogy could also be applied to the rate of growth of prices and applies to the same definition of recession, two quarters of disinflation could also mean a recession, too… The lower rate of growth of GDP expectations could also mean a lower rate of growth of price expectations which may delay spending and the recession and lower prices could actually become a reality.  At this time when the central bank wants people to delay-defer spending through higher interest rates which could increase the slowdown in the growth rate of GDP and lower demand and price expectations may also increase supply which could actually lower prices that is what is needed to lower interest rate and increase spending again. When the central bank wants less spending people shall spend less and when it wants more spending people shall spend more that is in the interest of the economy and investment. If the economy behaves as expected and the element of surprise is less the loss could be minimized. Inflation expectations lower supply which could reinforce higher current prices... Though, higher prices could lower demand and increase supply and reinforce lower current prices. Higher borrowing costs could lower inflation expectations and could also increase supply. Higher borrowing costs could also delay spending, which is good for the economy. Prices and growth depend upon spending which depends upon price or inflation expectations. Higher expectations increase the spending which could be self-fulfilling and increase current prices and vice versa.