High inflation rates are plaguing not only the industrial countries but the emerging markets as well. Indeed, the latter suffer even more as oil and food, the main drivers of prices, both play a particularly significant role in private spending. What impact will inflation have on these countries?
For the emerging markets the pickup in inflation entails a whole host of nega-tive consequences: governments are trying to avert looming social unrest by subsidizing prices, pushing up budget deficits. Negative real interest rates serve to further boost the construction sector, which is already overheating in many cases, opening up the prospect of overcapacities in the real estate market. Moreover, international competitiveness is being squeezed as most currencies have risen against the dollar and, in some cases, also against the euro in recent months. Higher inflation is now putting real exchange rates under additional upward pressure. On top of this come hefty wage increases and a steep rise in transport costs. This probably means that the days of high current account surpluses in the emerging markets are numbered. But this will at least help reduce global imbalances, above all the US current account deficit.
You can read this as well as our reports on Russia, South Africa and Turkey in the latest issue of “Economy & Markets” on the internet at:
http://group-economics.allianz.com (Publications).
Dr. Rainer Schäfer
tel.: +49 / 69 / 2 63 – 5 25 74
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