Policy Implications Of Rising Inflation

Rising inflationary pressures are creating policy dilemmas for Emerging European central banks. Wary of the rising interest rate differentials with developed economies, central banks in Central Europe and Turkey will tread carefully as they seek to avoid 'hot money' inflows over the course of 2011. However, we attribute higher inflation in the region largely to supply-side pressures and caution that public backlash and U-turns on fiscal austerity cannot be ruled out entirely.

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