Friday, July 11, 2025
  • Login
Euro Times
No Result
View All Result
  • Home
  • Finance
  • Business
  • World
  • Politics
  • Markets
  • Stock Market
  • Cryptocurrency
  • Investing
  • Health
  • Technology
  • Home
  • Finance
  • Business
  • World
  • Politics
  • Markets
  • Stock Market
  • Cryptocurrency
  • Investing
  • Health
  • Technology
Euro Times
No Result
View All Result

Even super-tight policy is not bringing down inflation

by Euro Times
October 25, 2022
in Finance
Reading Time: 4 mins read
A A
0
Home Finance
Share on FacebookShare on Twitter


It feels a little unfair. In July 2021, as rate-setters in America and Europe dismissed the risk of entrenched inflation, the Central Bank of Chile got its act together. Worried that inflation would rise and stay high, its policymakers voted unanimously to lift rates from 0.5% to 0.75%. The bank has since raised again and again, outpacing investors’ expectations and taking the policy rate all the way up to 11.25%. Perhaps no other central bank has pursued price stability with such dedication.

Has the star pupil been rewarded? Hardly. In September Chile’s prices rose by 14% year on year. The central bank’s preferred measure of core inflation accelerated to 11% year on year.

Chile’s example speaks to a wider problem. Many pundits say that if only the Federal Reserve, the European Central Bank and others had “got ahead of the curve” by quickly raising rates last year, the world would not be struggling with high inflation today. The experience of Chile, and other places that tightened early and aggressively, casts doubt on that argument. All over the world, it is proving extraordinarily difficult to crush prices.

The Economist has gathered data on Chile and seven other countries in which the central bank started a tightening cycle at least a year ago, and did so after having slashed interest rates to an all-time low early in the covid-19 pandemic. The group includes Brazil, Hungary, New Zealand, Norway, South Korea, Peru and Poland. Although Russia would have qualified, we have excluded it because its circumstances are unique.

Call the unlikely gang “Hikelandia”. In the year to October 2022 the median economy in Hikelandia raised rates by about six percentage points. If as expected the Federal Reserve raises rates by 0.75 percentage points on November 2nd, America’s cumulative increase over the past year will still be nowhere near as big.

Unsurprisingly, turning the monetary screws has slowed Hikelandia’s economy. The housing sector has quickly come off the boil as mortgage rates have risen. House prices are drifting down in New Zealand. South Korea’s pandemic housing boom has ended. Goldman Sachs, a bank, produces a “current-activity indicator”, a real-time measure of economic strength. Using its data, we find that Hikelandia’s economy is weakening relative to the global average. And there is worse to come. Chile’s central bank expects gdp to shrink next year.

Inflation, however, remains stubborn. Central banks often focus on the rate of “core” inflation, which excludes volatile components such as energy and food, and better reflects domestic inflationary pressures. In September core inflation in Hikelandia’s economy hit 9.5%, year on year, up 3.5 percentage points from March. Worse still, the gap between global core inflation and Hikelandia’s reading seems to be widening, not shrinking.

Dig into the national statistics of Hikelandia, and the trends become even more concerning. Chile’s wage growth continues to accelerate. In September South Korea’s inflation rate in the labour-intensive service sector was 4.2% year on year, its highest since the early 2000s. In the past six months Hungary’s service-sector inflation has climbed from 7.2% to 11.5%. Across the club, inflation is becoming more “dispersed”, affecting a wider range of goods and services. In September the price of 89% of the components of Norway’s inflation basket rose by more than 2% year on year, up from 53% six months before. In research on Poland, published in late September, economists at Goldman Sachs found evidence that “underlying inflation momentum has picked up again”.

Hikelandia’s struggles raise three possibilities. The first is that it is currently unrealistic to expect inflation to fall. Research suggests that there are lags, sometimes long ones, between tighter monetary policy and lower inflation. It is also tricky to control inflation when almost every currency is depreciating against the dollar, making imports more expensive. All this may be true. But after being surprised again and again by inflation, you would be brave to bet that Hikelandia’s inflation will soon be anywhere near central banks’ targets, even if conditions begin to improve.

The second possibility is that policymakers, including those in Hikelandia, have not been sufficiently courageous. Perhaps central banks should have raised interest rates more aggressively. This is an argument stridently made by Chile’s remaining “Chicago Boys”, libertarian economists who spearheaded the country’s free-market reforms in the 1970s.

Governments might also do more to help out. After ramping up spending when the pandemic struck, the median budget deficit in Hikelandia has fallen, but is still wide at 3% of gdp. Further increases to taxes or cuts to public spending would help reduce demand. Yet this strategy carries risks, too. Implementing austerity during a cost-of-living crisis would be deeply unpopular. And Chile, which has nonetheless taken the plunge and is forecast to run a budget surplus this year, is still seeing little payoff in terms of lower inflation.

That leads to a third possibility—and the most worrying one. Perhaps inflation is simply harder to stop than anyone could have predicted a year ago. In a report published in the summer the Bank for International Settlements, a club for central banks, hinted at this possibility. In a “low-inflation regime”, the norm before the pandemic, no one paid much attention to prices, ensuring they did not rise quickly. But in a “high-inflation regime”, such as in the 1970s, households and firms start to track inflation closely, leading in time to “behavioural changes that could entrench it”. If the world has shifted from one norm to another, then more creative tools will be needed to cool prices. ■



Source link

Tags: bringingInflationPolicysupertight
Previous Post

Salman Rushdie loses sight in one eye, use of a hand: Report

Next Post

What Is Aptos? Inside the New Move-Based Layer 1 Chain

Related Posts

Corn Sticking Close to Unchanged at Midday

Corn Sticking Close to Unchanged at Midday

by Barchart
July 11, 2025
0

Corn futures are down fractionally within the close by contracts, with new crop December up ¼ cent. There have been...

Life has no fun on high base as ULIP sales slow down

Life has no fun on high base as ULIP sales slow down

by Euro Times
July 11, 2025
0

MUMBAI: Life insurance coverage corporations posted a 4.25% year-on-year improve in new enterprise premiums for the April-June quarter, pushed largely...

Why Is Every Natural Disaster Being Politicized?

Why Is Every Natural Disaster Being Politicized?

by William L. Anderson
July 10, 2025
0

Even whereas the seek for lacking individuals in flood-ravaged Texas continues, the politicized invective has come from the Left. Maybe...

Barclays launch new sub-4% mortgage deal to compete with best rates on market

Barclays launch new sub-4% mortgage deal to compete with best rates on market

by Karl Matchett
July 11, 2025
0

Signal as much as our free cash publication for funding evaluation and skilled recommendation that will help you construct wealthSignal...

Genius Act: This New US Crypto Law Could Pave the Way for the Next Global Financial Crisis

Genius Act: This New US Crypto Law Could Pave the Way for the Next Global Financial Crisis

by Yves Smith
July 10, 2025
0

Yves right here. I want I had reposted among the content material from an incredible 2022 put up at Heisenberg...

Reagan’s Trade Gamble: The Story Behind the Voluntary Export Restraints

Reagan’s Trade Gamble: The Story Behind the Voluntary Export Restraints

by David Hebert, Marcus M. Witcher
July 10, 2025
0

Ronald Reagan deserves a lot reward for his stalwart dedication to free commerce and decreasing commerce obstacles. Even his most...

Next Post
What Is Aptos? Inside the New Move-Based Layer 1 Chain

What Is Aptos? Inside the New Move-Based Layer 1 Chain

Sentiment Speaks: Are We Ready To Rally To 3900+SPX?

Sentiment Speaks: Are We Ready To Rally To 3900+SPX?

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Why ACA health insurance premiums may see ‘sharp’ increase in 2026

Why ACA health insurance premiums may see ‘sharp’ increase in 2026

July 11, 2025
PEP, Supportive Care, and More

PEP, Supportive Care, and More

July 11, 2025
Research Predicts 0,000 Bitcoin By EOY, If Treasury Firms Hold

Research Predicts $160,000 Bitcoin By EOY, If Treasury Firms Hold

July 11, 2025
Russia develops Mi-80 to replace iconic Hip helicopter

Russia develops Mi-80 to replace iconic Hip helicopter

July 11, 2025
Elon Musk’s SpaceX set to launch Israel’s Dror satellite

Elon Musk’s SpaceX set to launch Israel’s Dror satellite

July 11, 2025
Corn Sticking Close to Unchanged at Midday

Corn Sticking Close to Unchanged at Midday

July 11, 2025
Euro Times

Get the latest news and follow the coverage of Business & Financial News, Stock Market Updates, Analysis, and more from the trusted sources.

CATEGORIES

  • Business
  • Cryptocurrency
  • Finance
  • Health
  • Investing
  • Markets
  • Politics
  • Stock Market
  • Technology
  • Uncategorized
  • World

LATEST UPDATES

Why ACA health insurance premiums may see ‘sharp’ increase in 2026

PEP, Supportive Care, and More

  • Disclaimer
  • Privacy Policy
  • DMCA
  • Cookie Privacy Policy
  • Terms and Conditions
  • Contact us

Copyright © 2022 - Euro Times.
Euro Times is not responsible for the content of external sites.

No Result
View All Result
  • Home
  • Finance
  • Business
  • World
  • Politics
  • Markets
  • Stock Market
  • Cryptocurrency
  • Investing
  • Health
  • Technology

Copyright © 2022 - Euro Times.
Euro Times is not responsible for the content of external sites.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In