Good point on possible inflation

In Financial competency on 25/07/2021 at 5:16 am

The Russian central bank recently raised interest rates by 1%. It had done so three times earlier this year.

Elvira Nabiullina, the central bank’s governor, fears that inflation, which reached 6.5% year-on-year in June, will prove persistent.

The pandemic has changed the pattern of spending in the world economy. Firms do not know if this new pattern will last. As a consequence, they may not make sufficient investments required to adapt supply to the changed contours of demand, Ms Nabiullina argues. The result is persistent price pressure. Ms Nabiullina’s worries are shared by a number of other emerging markets. Brazil, Chile, the Czech Republic, Hungary and Mexico have all recently raised rates. Russia’s foreign policy has antagonised many countries. But its approach to monetary policy is finally gaining a following.

Economist: Expresso
  1. In a free & functioning economy, companies will adjust production to meet changing demand to earn moolah. It may take months or a couple of years, depending on type of product & processes e.g. level of mfg expertise, supply chain. But it happens.

    As they say, the cure for high prices is high prices.

    Many of those countries mentioned have poorly functioning economies, either currently or many long periods in the past. Policymakers (and people in general) are a product of their lived past. When you are born with a hammer, everything looks like a nail.

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