EMs: Inflation Set To Ease  

 

• While inflation in some DMs may continue to accelerate into next year, Fitch believes that inflation in most major EMs will ease over the remainder of this year. The pace of the decline will be gradual-- among major Ems, inflation will slip from 7.6% y-o-y in September to 6.9% y-o-y in December.
• While electricity and natural gas prices remain elevated in some DMs, this challenge is – for the most part –limited to Europe. For most EMs, the energy price that has had the biggest effect on inflation has been oil, which shot up in early 2022 as a result of Russia’s invasion of Ukraine.
• Oil prices have, however, eased recently. Given the base effects caused by high oil prices in late 2021 and early 2022, it is expected that the year-on-year growth of oil prices (which is what matters for inflation) will weaken over the coming months, and will turn negative in early 2022
• Despite this disinflationary trend, Fitch expects that inflation will remain elevated in 2023. However, if Mainland China is excluded from the calculation, then EM inflation will slip from 14.9% in 2022 to 11.4%, but this is still much higher than the 6.4% recorded between 2015 and 2019.

(Source: Fitch Solutions)