Original title: British media: inflation in emerging markets hit a six-year high last year
Soaring food prices have pushed inflation across emerging markets to their highest level in nearly six years, reversing the deflationary trend that has dominated developing countries since the end of the global financial crisis, according to British media on January 23.
According to the Financial Times website on January 21, a wave of fuel price inflation, largely driven by base effects, is likely to intensify in the coming months, helping to raise overall inflation.
At this stage, analysts do not expect a shift in the monetary policy cycle in most emerging markets, the report said. In recent years, inflation and benchmark interest rates have fallen simultaneously in many emerging markets.
However, the jump in inflation may limit the room for further monetary easing in countries such as Mexico, South Africa, India, Brazil and the Philippines, and add a touch of hawkishness to decision-making in eastern Europe.
Inflation across emerging markets jumped to 4.6% year-on-year in December, up significantly from 3.4% in September, according to an index provided by Capital International Macroeconomic Consulting.
This is the highest reading since 2014, although price pressures in the developed world are still unusually small, the report said. In 2014, the international oil price was 110 US dollars per barrel.
Kamaxia Trivedi, Goldman Sachs Group's co-director of global foreign exchange, interest rate and emerging market strategy research, said "headline inflation will rise further" in the developing world in the future.
He added: "after an unexpected downward trend in inflation across emerging markets in 2019, the new trend in recent weeks has been mainly the opposite, with unexpected significant upward trends in countries such as India, the Czech Republic, the Philippines, Poland and Turkey."
Goldman Sachs Group's inflation acceleration index reportedly rose significantly after it hit a low in September last year. The indicator aims to capture the growth momentum and base effect of 16 emerging market countries. Goldman Sachs Group called it a "pretty good indicator to predict the future trend of year-on-year inflation".
According to data from Capital Macro, this upward trend is mainly driven by soaring food price inflation. Food price inflation has jumped to an eight-year high of 8.2%.
The report believes that because food tends to account for a higher weight in the emerging world's consumer price index basket, this will have a greater impact on overall emerging market inflation than in developed countries.
Vegetable prices in India soared after severe floods destroyed crops, pushing up food price inflation.
Edward Grossop, an emerging markets economist at Capital Economics, believes that food inflation in emerging markets is "probably close to its peak", vegetable inflation in India is likely to ease after the first quarter of this year, and there are signs that the damaging effects associated with classical swine fever are receding.
According to the report, Capital Macro expects its main indicator of emerging market inflation to show a downward trend from now on. Still, Mr Grossop says inflation will actually rise further in most emerging market countries.
First, higher oil prices are likely to push up inflation. As oil prices in 2019 are generally lower than those in 2018, year-on-year fuel inflation is generally negative, driving down overall inflation. Recently, however, year-on-year oil price spreads have turned positive, which means they will push up rather than lower consumer price index inflation.
Second, core inflation, excluding food and fuel prices, may also rise in countries that have recently relaxed monetary policy, such as India. Over the past year, interest rates in India have fallen from 6.5 per cent to 5.25 per cent. At the same time, strong economic growth and labour shortages should keep inflation high in Eastern Europe.
File photo: people buy vegetables at a night market in the Indian capital New Delhi. (Xinhua News Agency)