Turkey on the verge of hyperinflation?
Turkey has ignored caution as the rest of the world worries about rising inflation. The country’s central bank lower the prime rate to 15 percent in November for the third month in a row, although the country’s consumer price index rose 19.9 percent in October year-over-year.
On Friday, according to a Reuters poll, the annual inflation rate is expected to exceed the 20 percent mark and reach 20.7 percent. That would be the highest rate since November 2018, when the country was one Currency crisis.
Turks watched with horror as they endured a repeat of this episode in the past few weeks, with the lira plummeting 28 percent against the dollar since early November. Analysts warn that Turkey could head for hyperinflation if President Recep Tayyip Erdogan refuses to abandon his fixation on low interest rates. The country is heavily dependent on imports and other raw materials, which are becoming more and more expensive with the lira’s price slide.
“The headline CPI is likely to be around 30 percent [year on year] in the coming months, ”wrote Phoenix Kalen, analyst at the French bank Société Générale, in a recent statement.
“The peak near-term CPI of 27 percent would be an optimistic scenario,” added Kalen. Laura pitel
Will US jobs put pressure on Powell to hike rates?
Traders will be keeping a close watch on Friday’s US labor report as questions mount about the future direction of monetary policy in the world’s largest economy.
Powell said it was “time to slow down” as the economy made “significant” strides toward two central bank goals of full employment and inflation averaging 2 percent. But there is “still ground to be found in order to achieve maximum employment,” he added.
Recent data now suggests labor market tightening, with new claims for US unemployment benefits falling to their lowest level since 1969.
Big job pressures could raise expectations of an increase in the cost of borrowing. US employers added 531,000 jobs in October and Andrew Hunter, chief US economist at Capital Economics, expects a “solid 500,000 in November”.
“But the growing risk of a Covid wave in winter and a dwindling supply of available labor are likely to weigh on employment growth,” warned Hunter.
The core consumer spending index – the Fed’s preferred inflation indicator – rose 4.1 percent in October, the largest year-on-year increase since the 1990s and higher than September’s annual increase of 3.7 percent.
That left the Fed facing a tricky balancing act for the next year, said Brian Nick, chief investment strategist at Nuveen.
Interest rates are unlikely to hike while the US economy is still recovering from the pandemic, but investors will soon find out “how tolerant the Fed has become of higher inflation,” Nick said.
“If ‘transition’ was this year’s buzzword, next year it will be ‘full employment’,” predicts Nick. George Steer
Will inflation in the euro zone reach its highest level since the introduction of the single currency?
Inflation in the euro area is expected to hit the fastest rate in 30 years for November on Tuesday. Such a surge would match a similar record hit last month in the US as both economies face rising energy costs, strong consumer demand, and supply chain disruptions.
Economists polled by Reuters predict that annual headline inflation in the euro zone will hit 4.4 percent in November. That would be an increase of 4.1 percent in October and more than double the European Central Bank’s price stability target of 2 percent.
It would also be the highest rate since the euro was introduced in 1999 and the fastest since 1991.
Core inflation, which excludes energy and unprocessed food, is projected to rise to 2.3 percent, the fastest rate in more than a decade.
“Headline inflation will remain high throughout the fourth quarter,” said Melanie Debono, an economist at Pantheon Macroeconomics, “with temporary factors currently supporting the headline rate such as higher energy prices, backlog of services, and supply-side disruptions that could prove to be turn out to be more sustainable than the political decision-makers expect. ”
In line with consensus, Debono recently raised its inflation forecast for the eurozone, but believes that “the markets are wrong on tightening the ECB in 2022”.
At its meeting in October there was broad consensus in the Governing Council that, according to the minutes published on Thursday, there were “no signs yet” of a transition from higher energy prices to wages.
This means little underlying price pressure in the medium term, while the new Covid-19 variant may pose another downside risk to the eurozone’s economic and inflation outlook. Valentina Romei