According to an in-depth study, global forces are largely responsible for lowering inflation over the past decades
Tokyo, Friday, 9 November 2018 ((resonodwes.com)) – While global inflation, which has fallen to low levels, continues to rise, the efforts of emerging and developing economies to keep inflation low in recent decades are at stake. This is the conclusion of the World Bank's unpublished study on inflation in emerging and developing economies.
According to the report of the World Bank titled Inflation in Emerging and Emerging Economies: Evolution, Driving and Policiesthe detrimental effects of high inflation are likely to be particularly burdensome for the poor, who retain most of their cash assets and rely mainly on wages, social benefits and pensions. High inflation is generally linked to the slowdown in economic growth, so it is vital, according to the World Bank, to keep moderate and steady inflation in the fight against poverty and poverty reduction. inequalities.
"Recent research on inflation, its causes and its characteristics in general does not take account of its impact on emerging and developing countries, is this gap that the report intends to cover, says Shanta Devarajan, Chief Economist and Senior Director of the World Bank for Economic Development (acting). This new study will be used to design policies that will protect the most vulnerable people and economies from the negative effects of high inflation. "
In order to understand the impact of inflation on emerging and developing economies, the International Bank Outlook Group conducted for the first time a thorough analysis of inflation and its impact on these economies. This new study also includes a global data set for inflation covering more than 175 countries over the 1970-2017 period.
This study demonstrates the influx of structural and political factors that have led to the low level of global inflation over the last five decades and in particular to unprecedented consolidation of international trade and financial markets. The adoption of more resilient monetary, exchange and fiscal policies has allowed some emerging and developing economies to better control inflation. However, the external factors that have kept inflation in recent decades are likely to weaken or disappear.
"For almost five decades, inflation has shrunk dramatically in many emerging and developing economies, a monumental move, assessment Ayhan Kose, Director of the World Bank's Prospective Development Group, and co-author of the report. But in a highly integrated global economy, it can be equally difficult to keep inflation low to reach this level of inflation. These countries need to prepare for sudden changes in world inflation by strengthening their monetary, fiscal and financial policies. "
The study, centered on emerging and developing countries, looks at the evolution of inflation and the global and national factors that fuel it, the impact of inflationary expectations on price stability and its sensitivity to exchange rate fluctuations. In particular, it analyzes the impact of monetary policy and changes in food prices on inflation in low-income countries.
"In order to mitigate the impact of global food poverty on poverty without causing any side effects, a delicate policy approach is needed. says Franziska Ohnsorge, head of the World Bank's Prospective Development Group, and co-author of the report. The use of certain trade policies to preserve domestic markets from commodity price shocks may increase the volatility of world prices and after allto avoid protecting the most vulnerable. On the other hand, targeted storage policies and social protection systems can mitigate the negative consequences of these disturbances, while avoiding the wider distortive effects of other measures. "
Read the report: Inflation in Emerging and Emerging Economies: Evolution, Guides and Policies
Here are the main findings of the study:
- A global inflation cycle appears to have occurred in the 2000s. Since 2001, changes in global inflation have been responsible for a significant share of inflationary fluctuations in both advanced and emerging economies and emerging economies. development. The influence of this global cycle is particularly strong in developed countries and is particularly unified with the global economy.
- The global inflation cycle varies with global demand movements and sudden changes in oil prices.
- Inflation expectations are more sensitive to global and domestic developments in emerging and emerging economies than in advanced economies. They are more firmly anchored in emerging and developing economies with low levels of public debt and more open to trade.
- Exchange rate fluctuations can enhance the impact of global forces on domestic inflation in emerging and developing economies. When the central bank is independent and has good credibility, these fluctuations are far less likely to lead to inflationary pressures. Over the last 20 years, improved central bank policies and a stronger commitment to inflation expectations partly account for this lower impact on exchange rates.
- Improving the performance of low-income countries with regard to inflation appears to be largely attributable to external forces. If global inflation is rising, these countries may see an increase in inflationary pressures.