Markets
Chart Beat: Stubborn emerging market inflation dampens interest rate cut hopes
Summary
- In emerging economies, inflation remains high due to weakening currencies and high debt.
- As a result, interest rate cuts may be further delayed as central banks face the threat of surging global oil prices.
Inflation in the US saw a slower-than-expected rise in April, with the consumer price index (CPI) increasing by 3.4% year-over-year, according to the latest data. The core CPI, which strips out the volatile food and energy sectors, softened for the first time in six months.
However, on the global stage, the inflation fight is far from over. In the March quarter of 2024, the Emerging Economies CPI hit a multi-quarter high of 7.88%. This composite measure, calculated as a weighted average of 26 emerging markets including India, China, Indonesia, Hong Kong, and Taiwan, factors in each country's nominal GDP in US dollar terms.
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Economists at Yes Securities noted that while headline inflation has eased in major economies, thanks to a broad decline in goods prices and reduced stress in the global supply chain, it remains elevated in several emerging markets. These regions are grappling with weakening currencies and high debt levels, suggesting that the anticipated interest rate cuts could be delayed as central banks also contend with rising global oil prices.
