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Energy costs added to emerging central bank’s inflation

Higher energy prices are fanning inflation in several emerging markets. This is by testing the resolve of their central banks, says the analysts. Also, they can risk the stymieing growth in Hungary, Poland and the Czech Republic. Due to the price pressures, the Czech National Bank (CNB) raised its main interest rate by 75 basis points. It cited rising energy prices as well as supply-chain disruptions.

The country’s prime minister said that the hike would damage the economy. There will be dilemma emerging central banks face. This is because, they try to head off inflation. And that is already running above target levels. Benchmark European gas prices have surged more than 300% this year. This is because of factors such as the low storage levels, outages and high demand. The Czech Republic, Poland, Hungary and Romania were more exposed. This is because energy and utilities account for a relatively larger share. On the other side the electricity supplies are more exposed to carbon-intensive sources. Turkey has been clobbered too.

Consumer prices had generally grown. S&P Global Ratings lead economist Tatiana Lysenko, highlighted countries like Poland, Hungary, Russia and Brazil. Lysenko said that the inflationary pressures in emerging European economies are proving to be more persistent than they anticipated. EMEA central banks will continue to navigate a complicated landscape. This seeks a balance between supporting the recovery and anchoring inflation expectations. Higher global energy and food prices are showing few signs of easing. Goldman Sachs forecasts inflation for the year at 4.5% in Romania, 3.9% in the Czech Republic and 3.7% in Poland. The Czech central bank said that more rate rises would follow the big hike. Hungary plans to tighten policy more. The Czech hike gave a boost to both country’s currencies.

Poland may also be tempted to deliver an earlier than expected hike. Citi analysts said that they expect Poland to deliver its first-rate hike in March or April 2022. Turkey is likely to prove an exception. President Tayyip Erdogan’s desire for stimulus. David Rees, Schroders senior emerging markets economist said that Turkey is most vulnerable to higher energy costs. This is because they have historically caused its balance of payments to deteriorate. The lira has come under pressure. It has slumped to record lows recently.

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