德银-新兴市场-宏观经济-新兴市场通胀：缓慢攀升-20171227-27页_1mb

Summary of Emerging Markets Inflation Report (December 27, 2017)

Core Content

This report provides an analysis of emerging market (EM) inflation dynamics for 2018, highlighting the gradual increase in inflationary pressures across the globe. It introduces a composite index to better reflect the underlying trends, as opposed to traditional weighted averages, which may be skewed by large outliers. The report emphasizes that while inflation remains subdued in most EM countries, it is expected to rise in the coming months, particularly as the global output gap narrows.

Main Points

• Inflation Trends: EM inflation has been below its long-run average since late 2012, with a notable recovery starting in late 2016. However, the pace of recovery has slowed since the beginning of 2017.

• Generalized EM Inflation: A composite measure of EM inflation, derived from data across 87 countries and commodity prices, is used to capture the general trend. This method aims to reduce the bias caused by large economies like Russia and Brazil.

• Inflation Expectations: The index of global EM inflation expectations increased in November, particularly in Turkey, Malaysia, Indonesia, Brazil, Mexico, and China. However, it is still below the peak seen in Q1 2017. The report notes that expectations in some countries, like Turkey, are more volatile and prone to downward surprises due to potential loss of central bank credibility.

• Country-Specific Forecasts:

  • Hong Kong, Russia, Brazil, Korea, Israel, Malaysia, Indonesia: Expected to see inflation increase in 2018.
  • Mexico and Turkey: Projected to experience declines in inflation, with Turkey facing more significant risks due to central bank credibility issues.
  • India, Colombia, Czech Republic: Inflation is expected to slightly decline in 2018, with India's inflation remaining capped due to low capacity utilization.
  • Philippines and Indonesia: Likely to be the most aggressive central banks in 2019, with potential for multiple rate hikes.

• Impact of Global Shocks: Global commodity prices, particularly food prices, have a significant impact on EM inflation, influencing both the trend and the irregular component. These shocks are expected to affect inflation in different ways depending on the region.

• Heat Maps and Surprises: The report uses heat maps to visualize inflationary conditions, showing that while most EM countries remain below their historical averages, some areas like Turkey and CEMEA are more prone to inflation surprises.

Key Information

• Inflation Levels: EM inflation remains subdued at around 3.8%, below the long-run average of 4.7%. Inflation is expected to rise by the end of 2018.

• Methodology: The composite index is based on a joint stochastic process of EM inflation, aiming to reflect the common underlying inflationary pressures more accurately.

• Regional Highlights:

  • Asia and CEE: These regions are leading in the inflation cycle, with some central banks already hiking rates.
  • Latin America: Inflation is expected to increase, but remains below its long-run average.
  • Turkey: Facing significant inflationary risks due to central bank credibility and global commodity prices.
  • Mexico: Expected to see a decline in inflation, but with less severe risks than Turkey.

• Surprises in November: Inflation surprised on the upside in India, Turkey, and Mexico, while some countries like Korea and Vietnam saw declines. Egypt's inflation plummeted due to base effects.

Forecast Paths

The report outlines the expected inflation paths for several EM countries, noting that most will see an increase in inflation from current levels by the end of 2018. The following table summarizes the expected changes in inflation (Δ 2018YE, pp) and initial conditions (YoY %) for key countries:

Conclusion

The report concludes that EM inflation is expected to rise in 2018, with the narrowing global output gap as a key driver. While most EM countries are expected to see a gradual increase in inflation, some like Turkey and Mexico may experience declines. The composite index is considered a more accurate reflection of the underlying inflationary trends, and the report emphasizes the importance of monitoring global commodity prices and central bank credibility in assessing EM inflation dynamics.