Emerging Markets | Monetary Policy & Inflation
The past week or so saw a recovery in almost all risk markets, including emerging markets (EM). So is all well in EM? We’d be more cautious. For one, growth expectations have collapsed just like in developed markets (DM). But unlike DM, inflation expectations remain high (Chart 1). This is likely due to the greater weighting towards food in CPI calculations across the EM world (DM has a higher weighting to housing). This raises the spectre of a stagflation in EM – which typically is a poor environment for local risk markets.
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