Inflation: a new worry for emerging markets

The outlook for emerging markets is clouding over rapidly - following years of strong growth and the surge in commodity prices, inflation is back with a vengeance.

Amid all the worry about the effect of the credit crisis on emerging markets, another vital issue for the developing world has been overlooked, says FAZ.net. Following years of strong growth and the surge in commodity prices, notably food (in some countries, subsidies cushion the impact of higher energy prices), inflation is "back with a vengeance". In Ukraine, it has hit 26%, Sri Lanka's rate is 25% and Latvia's 17%.

The Bank of Turkey foresees a rate of 10% in the third quarter, while in China inflation remained above 8% in March and non-food inflation hit a seven-year high of 1.8%, a sign price pressures may be spreading beyond food, says Capital Economics. Meanwhile, Russia is showing signs of overheating, with nominal wages growing by 30% year-on-year; higher labour and food costs are underpinning inflation of 13.3%. Vietnam's boom has pushed inflation to 21%. Merrill Lynch is now forecasting inflation across emerging markets of 6.7% this year, a seven-year high. And according to JPMorgan, inflation in developing economies is around 3% above the average target ceiling.

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