INFLATION AND MAIN DETERMINING FACTORS IN NON-EURO CEE COUNTRIES DURING THE PERIOD 2020-2022. AN EMPIRICAL ANALYSIS

Abstract

Maintaining a low level of consumer price index, which is beneficial for a country economy, requires a mix of economic measures undertaken by most central banks and other decision factors. The optimal strategies need to know in advance the impact of each factor that could determine the inflation evolution. This research aims at analysing the influence and correlations between inflation determinants in the non-euro area of Central and Eastern European countries, taking into consideration also the impact of nominal effective exchange rate, during the Covid-19 pandemic period. The data was drawn from the Eurostat databases for the period Q1 2020-Q2 2022. Pearson’s correlation coefficients were calculated between all pairs of selected variables in all countries, and the analysis of the principal components was used because of multicollinearity issues. The authors found that the most significant correlation is between the Harmonised Index of Consumer Prices (HICP) and interest rate (IR) in both directions in all typical countries except Bulgaria, where the national currency is pegged to EUR. Moreover, there are significant correlations between all variables and the principal components of inflation are different with each country, suggesting different measures against the persistence of a medium or high level depending on each country’s economic characteristics.