Central banks – Playing catch-up with inflation
By Natalia Gurushina, Chief Economist, Emerging Markets Bond Strategy, VanEck
The poor publication of Polish inflation indicates that it is too early for the central bank to relax. Brazil may have been one of the budget stars of emerging markets this year – can the government resist the temptation to spend more?
Some central banks have pretended for too long that inflation is a paper tiger. Well the tiger is real and it bites. today impression of inflation in Poland was nasty – annual headline inflation jumped to 6.8%, and the rise in core inflation (estimated at 4.6%) indicates that all the pressures on prices are not temporary. The Polish central bank (NBP) surprised with a 40 basis point rate hike earlier this month, but indicated in subsequent communications that there would be no prolonged campaign of “shock and fear. “. This morning outing suggests that this assessment could have been premature, and that the NBP may need to deliver a double punch at its next meeting (in the form of a hike of around 50 basis points) to regain credibility – especially in the context of the government’s budget push.
When it comes to budget plans, few countries attract as much attention as Brazil. today government budget figures looked really good – the current primary deficit over 12 months fell to 0.63% of GDP and the overall deficit to 4.84% of GDP in September due to stronger growth and higher inflation. But maybe it is a “short term gain / long term pain” situation, if the government tries to buy votes with higher social spending in the run-up to elections, which increases inflationary pressures. The the central bank will be forced to tighten further, and local bonds will continue to suffer – if this scenario were to materialize.
Political discourse often keeps us on edge these days – especially when it comes to taxes and the environment. We have decided to end this week with some fun facts (and pictures) about the two. In France, wineries are allowed to pay certain taxes in kind – more specifically, in marc, which is the residue left after the grapes have been crushed and pressed to extract the juice (see photo below). It’s good for the government – then they can get other things out of it and pocket the money. It’s good for the environment – production without waste. And a taxman can take a break from the routine of the office! Stay tuned and have a great weekend!
Graphic at a glance: a fun (and eco-friendly) way to pay taxes
Source: Natalia Gurushina