The inflation march continues + future shocks on the way?


The relentless march of inflation continues. The NBS reports the headline number as 18.3% in October, up from 17.9% in September. It’s also inching up on a month-on basis.

There are some who would argue that the central bank does not need to act and should in-fact ease monetary policy. They say inflation is supply driven and due to shocks to energy prices. Shocks which are largely due to the currency devaluations over the last two years.

But are the shocks over? We have gone full circle to the days of a high black market premium on foreign currencies. With the actions of the DSS last week we can expect the real premium to rise. The premium means we are in line for at least one more major currency movement. Which means we are in line for at least one more set of shock to energy prices.

So what should the central bank do with respect to monetary policy? If this were a game of poker then the monetary policy committee would be out of chips. Whatever move they make will be pointless, although easing will probably be worse.

To be clear there will be no macroeconomic stability, and probably no growth, until we resolve the foreign exchange market problems.


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