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Monday, October 3, 2022

Analysis: Fuel Consumption Adds to Rising Central Bank Inflation Headaches

LONDON – High fuel prices are pushing up inflation in several emerging markets, testing their central bank’s resolve and risking stable growth in Hungary, Poland and the Czech Republic, and further weakening of the currency in Turkey.

The Czech National Bank (CNB) on Thursday raised its key interest rate by 75 basis points in its bold response to price pressure, the largest increase since 1997. High costs in owner-occupied housing and services.

The country’s prime minister said the rise would hurt the economy, trying to stem inflation facing the emerging central bank, already trying to move above targets, while Kovid-1 maintained a fragile economic recovery from the pandemic epidemic, drawing a picture of dilemma.

Benchmark European gas prices have risen more than 100 percent this year as the economy recovers with low storage levels, outages and high demand, dragging down wholesale electricity costs.

The Czech Republic, Poland, Hungary and Romania grew more than other parts of the European Union because fuel and utilities accounted for a relatively large portion of their consumer price index basket for their power supply being carbon-intensive. Sources, Goldman Sachs analyst says.

Turkey also shut down last month with the price of natural gas for industrial use and the production of electricity.

Highlighting Poland, Hungary, Russia and Brazil, Tatiana Lysenko, chief economist at S&P Global Ratings, said consumer prices rose in general in countries where economic returns accelerated between the third quarter of 2020 and the second quarter of 2021.

“Inflationary pressures on emerging European economies are proving more permanent than we expected,” Lisenko said.

“EMEA central banks will continue to navigate a complex landscape, finding a balance between supporting recovery and adjusting inflation expectations in an environment where supply-side pressures may be more prolonged than previously expected.”

Graphic: Emerging Market Growth Revised Below, Inflation Rises:

With higher global energy and food prices showing some signs of declining, and the Czech Republic, Hungary and others facing tough labor markets, inflationary pressures need to remain stable.

Goldman Sachs forecasts inflation at 4.5 percent in Romania, 3.9 percent in the Czech Republic and 3.7 percent in Poland.

The Czech central bank said the rate hike would be even higher after Thursday’s big increase because it aimed to get people and firms accustomed to inflation, surpassing the 2 per cent target.

Hungary has plans to tighten policy by next month, raising interest rates by 15 basis points next month, Deputy Central Bank Governor Barnabas Virag said on Friday.

Disgusted comments and the rise in checks have both improved the currencies of the country, with the check crown reaching a one-month high against the euro.

Analysts say Poland could also be tempted to raise expected rents.

City analysts said they expect Poland to raise its first rate in March or April 2022, but added that faster growth is possible if banks become more confident about the strength of economic growth.

Turkey, however, will prove the exception. President Tayyip Erdogan’s desire for stimulus often leads to an orthodox approach to monetary policy.

Despite the inflation hovering at 19.25 per cent above the target, the central bank cut its policy rate by 100 basis points to 18 per cent last month.

In Istanbul, Turkey, people shop at the local market amid an outbreak of coronavirus disease, September 14, 2021. (Dilara Senkaya / Reuters)

“Turkey is most at risk for fuel costs because they have upset its balance of payments as payments have historically increased import costs,” said David Rees.

“After the recent surprise rate cuts, the lira is under pressure and sales could continue as energy prices rise further.”

The lira’s record has fallen in recent times, rekindling memories of the 2018 currency crisis and declining Turkish earnings.

By Tom Arnold




This News Originally From – The Epoch Times

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