By Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy, VanEck

Poland’s nasty inflation print signals that it is too early for the central bank to relax. Brazil’s might have been one of EM’s fiscal stars this year – can the government resist temptation to spend more?

Some central banks pretended for far too long that inflation was a paper tiger. Well, the tiger is real and it bites. Today’s inflation print in Poland was nasty – annual headline inflation surged to 6.8%, and rising core inflation (estimated to have reached 4.6%) signals that not all price pressures are temporary. The Polish central bank (NBP) had surprised with a 40bps rate hike earlier this month, but indicated in subsequent communications that there will be no prolonged “shock and awe” campaign. This morning’s release suggests that this assessment might have been premature, and that the NBP might need to deliver a double punch at its next meeting (in the form of a 50bps hike or so) to regain credibility – especially against the backdrop of the government’s fiscal push.

As regards fiscal plans, few countries attract as much attention as Brazil. Today’s general government budget numbers looked really good – the 12-month running primary deficit narrowed to 0.63% of GDP and the overall deficit to 4.84% of GDP in September due to stronger growth and higher inflation. But this might be a “short term gain/long term pain” situation, if the government will try to buy votes with higher social spending in the run up to the elections, adding to inflation pressures. The central bank will be forced to tighten moreand local bonds will continue to suffer – if this scenario were to materialize.

The policy talk often keeps us on the edge these days – especially when it is about taxes and environment. We decided to end this week with some fun facts (and pictures) about both. In France, wineries are allowed to pay some tax dues in kind – more specifically, in pomace, which is the residue remaining after the grapes were crushed and pressed to extract juice (see photo below). This is good for the government – it can then produce other things from it and pocket the money. This is good for environment – no-waste production. And a taxman can get a good break from the office routine! Stay tuned and have a great weekend!

Chart at a Glance: A Fun (And Environmentally Friendly) Way To Pay Taxes

Chart at a Glance: A Fun (And Environmentally Friendly) Way To Pay Taxes

Source: Natalia Gurushina

Originally published by VanEck on October 29, 2021.
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PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies. A reading above 50 indicates expansion, and a reading below 50 indicates contraction; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan’s index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG – JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

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