Managing Inflation and Price Stability in Volatile Transitional Markets

Abstract

Abstract. The urgency of the study is caused by escalation of inflation instability in transitional economies under impact of global financial, commodity as well as geopolitical shocks, which complicates achieving sustainable price stability. As the institutional capacity of central banks is not strong, monetary policy instruments are sometimes inadequate to reduce inflation volatility. This underscores the importance of exploring how monetary conditions and inflation expectations interact with external factors in such economies. This study focused on inflation processes and its control in transitional economies. The methodological foundation is based on theoretical-analytical and empirical methods with comparative analysis of macroeconomic indicators for 2010–2023 using international statistical databases. The findings show that inflation volatility in transition economies remained higher than average price movements, leading to limited predictability of monetary policy. A rise in interest rates has a cooling effect but does not eliminate inflationary fluctuations in the medium run. We demonstrate that loose anchoring of inflation expectations exacerbates pass-through from world shocks to domestic prices. Inflation is highly sensitive to world commodity price shocks and liquidity swings. The policy relevance is that interest rate policy should be combined with institutional and communication policies to control inflation volatility. Results can be applied by central banks in developing strategies towards price stability under macroeconomic uncertainty.