How to win the battle against inflation

Over the past year we have examined the economic fortunes of Hikelandia. In this group of eight countries—Brazil, Chile, Hungary, New Zealand, Norway, Peru, Poland and South Korea—central banks have fought inflation with unparalleled aggression. Hikelandia started raising interest rates a whole year before America’s Federal Reserve, putting it well ahead of the curve. Since then its average policy rate has risen by more than seven percentage points, compared with around five for the Fed. Yet for months Hikelandia’s central bankers had little joy: inflation kept rising.Now, at long last, that is changing. Although Hikelandia’s “core” inflation, a measure that strips out volatile prices such as for food and energy, is still too high, at around 9% year on year, it is on the way down, in part because higher rates are starting to bite (see chart). Hikelandia’s experience offers a glimmer of hope for other inflation-fighting central banks.