In late 2021 and 2022, countries across the globe observed an increase in consumer prices. It has been attributed to the disruption of supply chains caused by the COVID-19 pandemic. Casualties from coronavirus seem to be on the decline. However, broken supply chains have not yet been restored. There is also a suggestion that the countries that gave more financial stimulus during the pandemic are now experiencing higher consumer inflation.
Consumer inflation in 2022
A significant part of the observed consumer inflation is related to the energy sector. Fossil fuels have become more expensive as a result of more ambitious climate change targets. The demand for oil has been exceeding the supply since 2020, driving prices higher.
In recent months, another wave of increased consumer inflation has been observed, spurred on by the Russian invasion of Ukraine, leading to further disruption of oil, gas, and food supply to the global market. European countries face a significant increase in prices due to the dependence on Russian energy sources.
In particular, the price increase has been observed in the countries belonging to the Three Seas Initiative. Between February and March, the majority of them observed an increase in the annual Harmonized Index of Consumer Prices (HICP) by 1.5 percentage points. Among the countries participating in the Initiative, only Hungary and Slovenia did not observe a significant price index increase.
Increasing interest rates in 3Seas
In February, HICP values were between 5.5% for Austria and 14% for Lithuania. The highest consumer price indices were also observed in Estonia and Czechia. At the time, those were the only three countries in the 3Seas region where the HICP rose to double-digit values. However, in March, the consumer price index for 3Seas countries was between 6% for Slovenia and 15.6% for Lithuania. HICP increased to over 10% in Bulgaria, Latvia, and Poland.
Countries with national currencies have already begun increasing interest rates due to the consumer price index increase. For example, the Czech National Bank has been continuously increasing its policy rate from 0.5% in June 2021 to 5% in April 2022. Similar moves have been observed in Poland, Hungary, and Romania.
The discussion on the nature of currently observed inflation is active. Some experts argue that the current tempo of price increases is transitory, while the other group suggests that inflation is here to stay. Their opinions differ, but they list the following factors that may influence consumer prices: a shift from fossil fuels to non-emissive energy sources, globalization, technological advancements, demographics, structural changes, and policy choices.