Early to Hike, Early to Thrive?
Several central banks that began raising interests well before US and eurozone policymakers are still facing persistent inflation. But it was the right choice, because inflation was always likely to prove stubborn in today’s conditions, and waiting would have required even larger hikes later, with a heavier output cost.
LONDON – Brazil, Chile, Hungary, New Zealand, Norway, Peru, Poland, and South Korea: all raised interest rates early and high. But even after an average hike of six percentage points in the year to October, inflation is surging and growth is sagging. Have the countries in Hikelandia, as The Economist calls them, made a policy mistake?
Far from it. Moving before the US Federal Reserve and the eurozone was the right thing to do, precisely because inflation was likely to prove stubborn in today’s conditions. Waiting would have required even larger hikes later, with a heavier output cost.
The initial impetus for price increases came from collapsed supply chains and food scarcity caused by Russia’s invasion of Ukraine. It amounted to a cost-push shock to the world economy.
To continue reading, register now.
Already have an account? Log in