Missing the Inflation Targets
Romanian monetary policy seems to have messed up after having done so well for awhile. From the RGE Monitor,
# Plojhar (via Bloomberg): More rate increases will be needed, up to 11% this year, in face of overheating, high inflation, and a potential renewed currency weaknessCommenting on these points, Gabriel Mihalache has written,
# March inflation came in higher-than-expected at 8.63% yoy
# Danske: Inflation likely to remain well above NBR official inflation forecast in both 2008 and 2009. Expects key policy rate to be hiked to 11.0% over next 12 months
# NBR Governor Isarescu: Inflation rate will remain 'relatively high' in coming months, creating a risk of a price/wage spiral
For what it’s forth, inflation in Romania went from dizzying 14% in January 2004 to 4% throughout the first half of 2007 and then, after July 2007, it spiked into 8-9% territory.This graph (courtesy of Economic Investigations) shows just how far Romanian monetary policy has gone astray over the past few years:
The dots are the end of year inflation targets, the dashed lines are the +/- 1% target band and the red line is actual inflation.Wow! Look how that red line has taken off! As Milton Friedman used to say, and as my colleague David Laidler has often reminded us,
Persistent inflation is always and everywhere a monetary phenomenon.
Category: Economics, Macroeconomics, Money Posted on
Friday, May 30, 2008 at 1:20pm
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I think this is also a good time to discuss what counts as "persistent". The guys at the NBR put this down to "an exogenous shock, both internal and external" which might make sense for 2-3 quarters at most, no? Or more?