Inflation is affecting many countries on both sides of the Atlantic, and developing countries in Central and Eastern Europe are at the mercy of a global supply chain crisis with high energy costs.
Lithuania recorded one of the highest annual inflation rates recorded at 8.2%, while Estonia recorded 6.8%, Hungary recorded 6.6%, Poland recorded 6.4% and Germany’s major powers had a threshold of 5% this month. Expected to exceed the value. People feel that the prices of daily necessities such as food and fuel are rising, making it increasingly difficult to maintain the same quality of life as before the pandemic.
“I noticed that consumption is declining,” Gabor Pardi, a shopper in Budapest, the capital of Hungary, told AP. “I’m trying to buy the cheapest and most economical one, even if it doesn’t look good.”
The recession due to the COVID-19 pandemic blockade and other restrictions has led to lower investment due to the weakening of all employees, which has brought a handicap to the global economy.
To regain pre-pandemic momentum, economies like the United States have injected trillions of dollars in domestic aid, along with a impetus for economic mobilization that has not been seen since World War II.
Meanwhile, the Federal Reserve maintained low interest rates to revive businesses. However, this sudden sequence of actions had unintended consequences as the surge in requirements exceeded supply and the global distribution network was unable to keep up with the demands of new customers.
The situation of COVID-19 has not subsided in many parts of China. This means that the manufacturing facility is not on time for delivery. Coupled with labor shortages, the global supply chain began to be squeezed, and the prices of daily necessities gradually increased accordingly.
According to the International Monetary Fund, global consumer prices will rise 4.3% in 2021 to a level not seen in 10 years.
These effects were felt seriously in developing countries in Central and Eastern Europe and were hit hard when the local currency lost its value to the dollar. This pushed up food and gasoline prices and exacerbated supply chain shortages.
Polish and Hungarian government subsidies
In the last six months, the Hungarian currency Forint has lost almost 16% of its value against the US dollar. The price of goods has risen significantly.
As a temporary bailout for three months, the Hungarian government has announced an upper limit of 480 forint ($ 1.50) for 1 liter of fuel at a gas station. The national average is $ 1.59 for gasoline and $ 1.61 for a liter of diesel. Prices are up more than 50% compared to last year.
In neighboring Poland, Prime Minister Mateush Morawicki said on November 25 that the government would cut taxes on necessities and provide financial support to households through a $ 2.4 billion scheme designed to offset the effects of inflation. rice field.
Poland is at inflation levels that haven’t been seen for 20 years, and the government is basically trying to mitigate its effects through measures such as tax cuts on gasoline and value-added taxes on gas and electricity. Polish households will also receive about $ 96 to $ 276 in two installments starting next year.
To lower inflation, the government will start raising interest rates. The recent rise of 75 basis points is the second rise in two months, higher than economists predict, and is expected to curb price increases.
The National Bank of Poland’s decision was reflected in the decision by the Central Banks of the Czech Republic, Hungary and Romania to control rising inflation in their respective economies.
“National Bank of Poland’s decision … Alongside the upward revision of inflation forecasts, it suggests that NBP is taking the fight against inflation much more seriously than we thought,” said Capital Economics. Economist Liam Peach told FT.
However, according to Carmen Reinhardt, chief economist at the World Bank, aggressive rate hikes by all central banks will have a negative impact on economic recovery.