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Inflation to fall sharply in EM markets next year – Oxford Economies

Inflation to fall sharply in EM markets next year - Oxford Economies

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Oxford Economics Africa has predicted that inflation will fall sharply in 2023 in emerging markets (EM) economies, including South Africa, as global commodity prices are softening.

This comes after consumer prices in the US, the largest economy in the world, eased to 7.7% in October from 8.5% in September.

Head of global emerging markets research Gabriel Sterne yesterday said that the fall in global commodity price inflation would lead to double-digit declines in annual import price inflation by next year.

“Global commodity price inflation is falling, and by mid-2023 we expect double-digit declines. We see more downside than upside risks to global commodity prices,” Sterne said.

“Most remain 30% higher than prior to Covid-19, even as demand weakens.”

US inflation remained high last month but showed tentative signs of moderation, driven by a jump in energy, food, and shelter prices but partially offset by declines in used vehicles and medical care costs.

The market’s main takeaway from the latest events is that peak inflation is behind and the Fed is indeed likely to slow the pace of hiking down.

This could be a sign that the US Federal Reserve is making some progress in the fight to restore price stability after launching the most aggressive tightening campaign since the 1980s.

Meanwhile, gold prices have steadied around $1 770 (R30 606) an ounce as traders reassessed the outlook for US rates following mixed signals from the Fed.

Investors are betting that the Fed would moderate the size of their rate hikes to 50 basis points from December after delivering four consecutive 75 basis point increases.

Sterne said they expected a strong and quick impact of global commodity prices on emerging markets consumer price inflation.

“Our statistical estimates reveal that the transmission of global commodity prices and producer prices to emerging markets consumer prices is quick,” he said.

“We estimated simple statistical models, which reveal that the transmission from global commodity prices to domestic consumer prices is strongest in Central and Eastern Europe Middle East and Africa (CEEMEA); with 52% of the impulse to import prices is seen in consumer prices, nearly double that in Asia and LatAm.”

Sterne said CEEMEA had been most afflicted by rising inflation because of its high consumption of food and fuel, low subsidies, and Russia-related spikes in fuel prices.

He saidemerging economies were most prone to food price-real wage spirals tend to be those that have recently experienced cost-of-living protests.

“We have found previously that real wages in these societies are more sensitive to food prices; a rise in food prices relative to overall consumer prices leads to higher real wages.

“Our assessment of fuel subsidies earlier this year revealed a few cases where these subsidies were high, transferring inflation risk to fiscal costs. Lower fuel price inflation is as welcome as soaring prices were painful.”


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