Increasing consumer prices, spurred by high energy prices and production network disruptions, are pinching individuals and companies globally. Food, gas, and other commodity prices are rising.
This is forcing many individuals to choose between delving deeper into their wallets or tightening their straps. It’s been over two years since the COVID-19 outbreak happened and consumer demand returned.
Recent outbreaks of a distinct coronavirus strain, known as omicron, are prompting governments to tighten borders and implement other restrictions, jeopardizing global economic growth.
The repercussions are particularly felt in Central and Eastern Europe, where people struggle to afford food and gasoline. The global economy collapsed in spring 2020 as a result of the virus at the time when governments enforced lockdowns.
Companies were forced to close or reduce hours, and families remained at home.
Global inflation, mapped pic.twitter.com/0PG8YVmFLG
— ian bremmer (@ianbremmer) November 29, 2021
Prices Have Risen Dramatically
The US inflation rate reached 6.2 percent in October, the highest since 1990. The IMF predicts global consumer prices will rise 4.3 percent this year, the highest since 2011.
It is particularly prominent in Central and Eastern Europe’s emerging economies, with annual rates of Lithuania (8.2 percent), Estonia (6.7 percent), and Hungary (6.6 percent).
Moreover, in October, Poland’s inflation rate hit 6.4 percent, the highest in two decades.
Several customers at a Warsaw vegetable market expressed concern about rising prices for necessities like bread and frying oil. In addition, they anticipate the situation to worsen in the new year, as energy costs climb.
The depreciation of Central and Eastern European currencies (versus the Dollar and the Euro) is driving up import and gasoline prices, increasing supply shortages and other concerns.
Monetary Authorities’ Schemes
The Forint, Hungary’s currency, shed around 16 percent of its value in the previous six months and fell to a record low last week. That was a key component of the central bank’s plan to keep Hungary viable.
The bank also sought to attract international firms seeking low-cost labor, says Zsolt Balassi of Budapest’s Hold Asset Management. However, rising import costs and dollar-denominated oil prices have driven up gasoline expenditures.
In reaction to high fuel costs, Hungary’s government established a 480-forint ($1.50) ceiling at filling stations. Conversely, critics said Poland’s central bank allowed inflation to reach too high a level for far too long to boost economic development and popularity for the ruling party.
Global Central Bank Update:
-Poland hikes rates for the first time in over 9 years, 40 bps increase to 0.50%. Its 5.8% inflation rate is the highest in two decades. pic.twitter.com/OJUtPs3Hrq
— Charlie Bilello (@charliebilello) October 6, 2021
The bank startled markets by raising interest rates in October and November, whereas Hungary’s monetary authority lifted rates six times this year in smaller amounts.
Still, if monetary authorities act too vigorously to contain inflation too quickly, the recovery may be hampered, said World Bank chief economist Carmen Reinhart. She is concerned about rising food costs, which disproportionately affect the poor in developing nations.
Food prices, according to Reinhart, are a gauge for civil upheaval. She warned the Arab Spring riots that started in 2010 were exacerbated in part by increasing food costs.