Hi Gergely, No. At least in the USA the FED seems to have a lot of credibility. I expect the Fed to raise and hold interest rates this year and NOT pivot. I expect a lot of complaints in maybe summer when inflation is lower and unemployment is higher. Everyone will wonder why the Fed doesn't lower rates. But I think they will try hard to hold rates high, knowing that if they lower them every time there's a slowdown, eventually they lose control. I'm more worried about inflation in places like Hungary where I think maybe half is due to the war + sanctions but the rest is government policy using the excuse of the war and sanctions to continue letting inflation run high. Hungarian inflation could be harder to control if they keep up current policies.
In Hungary some analysts says that inflation is also driven by governmental decisions like price caps on fuel, basic food, etc. And then retailers increased the prices of other commodities to cover their losses. Also government gave a lot of cheap or free money to the voters before the elections, and people are spending like no tomorrow.
Thanks Gergely. Yeah, as I understand, the gov had to drop many price caps recently due to shortages and related problems (see my prediction about that in July 2022!...standard Econ 101, as they say). With caps on some goods, the inflation feeds into other goods. So when they lift the caps, the other goods prices should drop some and the formerly capped prices should rise (that is 100% inline with your comment that retailers increased other prices). That likely is not driving inflation today, unless enough goods had caps that are now being removed. And I agree the flood of cheap election money was a problem. And, for sure, the war in Ukraine, sanctions, energy prices, etc. are adding fuel to the Hungarian inflation fire!
Hi Chris, so you expect that fighting the inflation will take longer time to reach stable condition?
Hi Gergely, No. At least in the USA the FED seems to have a lot of credibility. I expect the Fed to raise and hold interest rates this year and NOT pivot. I expect a lot of complaints in maybe summer when inflation is lower and unemployment is higher. Everyone will wonder why the Fed doesn't lower rates. But I think they will try hard to hold rates high, knowing that if they lower them every time there's a slowdown, eventually they lose control. I'm more worried about inflation in places like Hungary where I think maybe half is due to the war + sanctions but the rest is government policy using the excuse of the war and sanctions to continue letting inflation run high. Hungarian inflation could be harder to control if they keep up current policies.
In Hungary some analysts says that inflation is also driven by governmental decisions like price caps on fuel, basic food, etc. And then retailers increased the prices of other commodities to cover their losses. Also government gave a lot of cheap or free money to the voters before the elections, and people are spending like no tomorrow.
Thanks Gergely. Yeah, as I understand, the gov had to drop many price caps recently due to shortages and related problems (see my prediction about that in July 2022!...standard Econ 101, as they say). With caps on some goods, the inflation feeds into other goods. So when they lift the caps, the other goods prices should drop some and the formerly capped prices should rise (that is 100% inline with your comment that retailers increased other prices). That likely is not driving inflation today, unless enough goods had caps that are now being removed. And I agree the flood of cheap election money was a problem. And, for sure, the war in Ukraine, sanctions, energy prices, etc. are adding fuel to the Hungarian inflation fire!