Central banks raising interest rates makes it harder to fight the climate crisis | Thomas Ferguson and Servaas Storm

Higher rates slow the renewable energy transition and shield oil and gas producers from competition by low-carbon producers

In late 2021, consumer price inflation surged in many countries. Prices shot up again following Russia's invasion of Ukraine in February 2022. In response, central banks drastically tightened monetary policy - raising interest rates from near zero to around 5% or more. Since the interest rate hikes have failed to bring down core inflation to the target rate of 2% favored by the Federal Reserve and the European Central Bank (ECB), the pressure for further rate hikes has been insistent.

We have long doubted that central bank rate rises could control the new inflation at a socially acceptable price. In most countries, wages lag well behind inflation. Too much of the rise in prices clearly reflects the impact of higher profit margins and obvious supply bottlenecks.

Thomas Ferguson is professor emeritus at the University of Massachusetts, Boston, and director of research at the Institute for New Economic Thinking

Servaas Storm is a senior lecturer at the Delft University of Technology