Energy costs add to new central bank inflation headaches

London-Rising energy prices have fueled inflation in some emerging markets, testing central bank determination, slowing growth in Hungary, Poland and the Czech Republic and increasing the risk of currency depreciation in Turkey Said the analyst.

The Czech National Bank (CNB) raised key interest rates by 75 basis points on Thursday in a bold response to price pressures. This is the largest increase since 1997. Rising energy prices, supply chain disruptions, domestic factors, and more. The cost of housing and services in which the owner resides is high.

The country’s prime minister has shown a dilemma facing emerging central banks trying to avoid inflation that is already above target levels while maintaining a fragile economic recovery from the COVID-19 pandemic, and this hike will hurt the economy. Said to give.

Benchmark Europe’s gas prices surged more than 300% this year, boosting wholesale electricity costs, due to factors such as low storage levels, outages and high demand as the economy recovers.

The Czech Republic, Poland, Hungary and Romania are more than other European Unions because of their carbon-intensive electricity supply, while energy and utilities occupy a relatively large share of the consumer price index basket. Was also exposed to the rise. Goldman Sachs analysts said, according to sources.

Turkey was also confused last month with a 15% rise in natural gas prices for industrial and electricity generation.

Consumer prices in countries where the S & P Global Ratings led economist Tatiana Risenko, emphasizing Poland, Hungary, Russia and Brazil, with a rapid economic recovery from the third quarter of 2020 to the second quarter of 2021 Has generally risen.

“Inflationary pressures in emerging European economies have proven to be more sustainable than we expected,” Lysenko said.

“EMEA Central Bank is in a complex situation, seeking a balance between supporting recovery and fixing inflation expectations in an environment where supply-side pressures can last longer than previously expected. I will continue to navigate. “

Graphics: Emerging market growth has been revised downwards and inflation has been revised upwards:

Epoch Times Photo

Inflationary pressures should prolong as global energy and food prices show little sign of easing and the Czech Republic, Hungary and others are also facing tight labor markets.

Goldman Sachs forecasts annual inflation of 4.5% in Romania, 3.9% in the Czech Republic and 3.7% in Poland.

The Czech central bank said there will be more rate hikes following Thursday’s big rate hike, with the aim of keeping people and businesses accustomed to inflation and not exceeding the 2% target.

Central Bank Deputy Governor Barnabash Virag said on Friday that Hungary also plans to tighten its policies further, raising base interest rates by 15 basis points in the coming months.

Virag’s comments and the Czech hike boosted the currencies of both countries, with the Czech crown hitting a month’s high against the euro.

According to analysts, Poland may want to hike faster than expected.

Citi analysts said they expect Poland to implement its first rate hike in March or April 2022, but if banks are more confident about the strength of their economic growth, than expected. He added that a quick pull is possible.

However, Turkey may prove an exception. President Tayyip Erdogan’s desire for stimulus often takes precedence over a legitimate approach to monetary policy.

Inflation was above target at 19.25%, but the central bank lowered its policy rate by 100 basis points to 18% last month.

People shop at local markets during the outbreak of coronavirus disease in Istanbul, Turkey, on September 14, 2021. (Dilara Senkaya / Reuters)

David Reese, senior emerging market economist at Schroeder, said:

“After the recent unexpected rate cut, Lira is under pressure and could continue to sell if energy prices rise further.”

The lira has recently fallen to a record low, evoking memories of the 2018 currency crisis and eroding Turkish earnings.

Tom Arnold