While Fed Is in Denial, Hawkish Bank of Russia Sees Inflation as “Not Transitory,” Warns of Possible Shock-and-Awe Rate Hike
US Inflation is almost as hot as in Russia, but the Fed is still blowing it off.
Consumer price inflation in Russia is red-hot, having jumped 6.0% in May compared to a year ago, 2 percentage points above the Bank of Russia’s target of 4.0%. Polls in Russia show that food inflation is a top concern, currently running at 7.4%.
But inflation in the US isn’t lagging far behind: The Consumer Price Index (CPI) jumped 5.0% in May. Yet the central banks are on opposite tracks in their approach to inflation.
Federal Reserve governors keep jabbering about this red-hot inflation being “temporary” or “transitory,” and likely to disappear on its own despite huge government stimulus and the Fed’s huge and ongoing monetary stimulus, though some doubts are creeping in among a couple of them. So they’ll keep interest rates at near-zero until at least next year, and they’re still buying $120 billion a month in securities to push down long-term interest rates.
Russia has been on the opposite trajectory, “surprising” economists at every step along the way. This trajectory started on March 19 with a 25 basis point rate hike, to 4.5%, against the expectations of 27 of the 28 economists polled by Reuters, who didn’t expect a rate hike. On April 23, the Bank of Russia hiked its policy rate by 50 basis points, to 5.0%. On June 11, it hiked by another 50 basis points to 5.5%. The next policy meeting is scheduled for July 23.
Is a shock-and-awe rate hike next? Bank of Russia Governor Elvira Nabiullina is preparing the markets for this possibility – so it won’t be a shock, but just awe.
At the July meeting, the central bank “will consider” an increase in the range from “25 basis points to 1 percentage point,” she told Bloomberg TV in an interview.
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