Inflation in Emerging and Developing Economies: Evolution, Drivers, and Policies

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(CC) Inflation in Emerging and Developing Economies/World BankThe World Bank has just launched the report “Inflation in Emerging and Developing Economies: Evolution, Drivers, and Policies.” The report says that the adverse effects of high inflation can fall disproportionately on the poor, who hold most of their assets in cash and rely heavily on wage income, welfare benefits, and pensions.

The research’s key findings include:

• A global inflation cycle appears to have emerged over the 2000s. Since 2001, movements in global inflation have accounted for a substantial share of inflation variation in advanced and emerging market and developing economies. The influence of this global inflation cycle has been most prominent in countries that are more developed and more integrated into the global economy.

• The global inflation cycle has fluctuated with movements in global demand and abrupt swings in oil prices.

• Inflation expectations in emerging market and developing economies are more sensitive to global and domestic developments than inflation expectations in advanced economies. Emerging market and developing economies with lower public debt and greater trade openness tend to experience better-anchored inflation expectations.

• Exchange rate movements can amplify the impact of global forces on national inflation in emergingmarkets and developing economies. Greater central bank credibility and independence have been associated with significantly lower pass-throughs of exchange rate fluctuations to inflationary pressures. The downward trend of exchange rate pass-through in the last 20 years may in part reflect improved central bank policies and a firmer anchoring of inflation expectations.

• The improved inflation performance of low-income countries appears, to a considerable extent, to have reflected external forces. If global inflation rises, low income countries may see rising inflationary pressures as well.

Download the World Bank report here.