December 1, 2021
  • December 1, 2021

Central banks – Playing catch-up with inflation

By on October 30, 2021 0

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

Originally posted by VanEck on Oct 29, 2021.

PMI Index – Purchasing Managers: economic indicators derived from monthly surveys of private sector companies. A reading above 50 indicates expansion and a reading below 50 indicates contraction; ISM – PMI Supply Management Institute: ISM publishes an index based on more than 400 surveys of purchasing and supply managers; both in manufacturing and non-manufacturing industries; CPI Consumer Price Index: an index of the change in prices paid by typical consumers for retail goods and other items; PPI – Producer price index: a family of indices that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Price index of personal consumption expenditure: a measure of US inflation, which tracks changes in the prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: a US provider of equity analysis tools, fixed income securities, hedge fund market indices and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows market expectations for 30-day volatility. It is constructed using the volatilities implied on the options of the S&P 500 Index .; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by governments in emerging markets; EMBI – JP Morgan Emerging Markets Bond Index: JP Morgan index of sovereign bonds denominated in dollars issued by a selection of emerging countries; EMBIG – JP Morgan Global Emerging Markets Bond Index: tracks the total returns of external debt instruments traded in emerging markets.

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