IMF warns emerging markets on inflation
Saturday, 19 July 2008
Krishna Guha in Washington and Geoff Dyer in Beijing, FT Syndication Service
Emerging economies must make the fight against inflation their "top priority", the International Monetary Fund (IMF) said last Thursday as it sharply raised its forecast for price increases in the developing world this year and next.
Many emerging markets had to raise interest rates, cut government deficits and let currencies appreciate more to contain the inflation risk, the IMF said.
The comments came as China announced mixed news on its efforts to combat inflation. Consumer price inflation continued to decline - from 7.7 per cent in May to 7.1 per cent last month - but factory gate inflation rose again from 8.2 to 8.8 per cent.
Beijing said the economy grew 10.1 per cent in the second quarter, down from 10.6 per cent in the first, and it was the fourth successive quarter in which gross domestic product (GDP) growth slowed. The rate, slightly below analysts' forecasts, was the lowest since the last quarter of 2005.
Simon Johnson, the IMF's outgoing chief economist, told reporters that emerging economies in Asia, in particular, were in danger of falling behind the curve on inflation. Brazil was praised for taking steps to curb price pressures.
The IMF expects inflation to hit 9.1 per cent in the emerging world this year and remain high at 7.4 per cent next year. The fund also marked up its forecast for inflation in the industrialised world, but inflation there would subside more quickly, it said, from 3.4 per cent this year to 2.3 per cent next.
The warning on inflation came as the IMF edged up its growth forecast for the US in the light of a better-than-expected performance in the first half of the year.
But it said the US economy was likely to contract in the second half amid a general slowdown in global growth.
It expects the contraction to be concentrated in the final months of the year, when the fiscal stimulus from tax rebates wears off.
The IMF has been consistently more bearish on growth throughout the credit crisis than most governments and central banks.
For most countries, "the top priority for policymakers is to head off rising inflationary pressure while keeping sight of the risks to growth", the IMF said.
"The global economy is in a tough spot, caught between sharply slowing demand in many advanced economies and rising inflation everywhere, notably in emerging and developing economies," Simon Johnson, the fund's outgoing chief economist, wrote in the update to the World Economic Outlook.
Larger relative increases in core inflation in the emerging world were a sign that the risk of high inflation taking root was greatest there.
In the industrialised world, the IMF said, the rise in inflation this year was expected to be "reversed" in 2009. But "in emerging and developing countries, inflationary pressures are mounting faster".
Wholesale food prices stabilise
Global wholesale food prices remained stable in June for a fourth consecutive month, the United Nations' Food and Agriculture Organisation said on Thursday, writes Javier Blas in London.
However, FAO officials warned that although wholesale food prices were moderating, retail prices were likely to continue rising as food companies passed earlier increases on to consumers.
The FAO food index averaged 216 in June, down from 217.5 in May and below a peak of 218.1 in March. The month-on-month fall was possibly due to a fall in meat and dairy prices offsetting rises in cereals, sugar and vegetable oil. The index is still up 30 per cent on the past 12 months.
The February-June period is the longest spell of price stability since the food crisis started two years ago, but prices are stabilising at high levels.
Emerging economies must make the fight against inflation their "top priority", the International Monetary Fund (IMF) said last Thursday as it sharply raised its forecast for price increases in the developing world this year and next.
Many emerging markets had to raise interest rates, cut government deficits and let currencies appreciate more to contain the inflation risk, the IMF said.
The comments came as China announced mixed news on its efforts to combat inflation. Consumer price inflation continued to decline - from 7.7 per cent in May to 7.1 per cent last month - but factory gate inflation rose again from 8.2 to 8.8 per cent.
Beijing said the economy grew 10.1 per cent in the second quarter, down from 10.6 per cent in the first, and it was the fourth successive quarter in which gross domestic product (GDP) growth slowed. The rate, slightly below analysts' forecasts, was the lowest since the last quarter of 2005.
Simon Johnson, the IMF's outgoing chief economist, told reporters that emerging economies in Asia, in particular, were in danger of falling behind the curve on inflation. Brazil was praised for taking steps to curb price pressures.
The IMF expects inflation to hit 9.1 per cent in the emerging world this year and remain high at 7.4 per cent next year. The fund also marked up its forecast for inflation in the industrialised world, but inflation there would subside more quickly, it said, from 3.4 per cent this year to 2.3 per cent next.
The warning on inflation came as the IMF edged up its growth forecast for the US in the light of a better-than-expected performance in the first half of the year.
But it said the US economy was likely to contract in the second half amid a general slowdown in global growth.
It expects the contraction to be concentrated in the final months of the year, when the fiscal stimulus from tax rebates wears off.
The IMF has been consistently more bearish on growth throughout the credit crisis than most governments and central banks.
For most countries, "the top priority for policymakers is to head off rising inflationary pressure while keeping sight of the risks to growth", the IMF said.
"The global economy is in a tough spot, caught between sharply slowing demand in many advanced economies and rising inflation everywhere, notably in emerging and developing economies," Simon Johnson, the fund's outgoing chief economist, wrote in the update to the World Economic Outlook.
Larger relative increases in core inflation in the emerging world were a sign that the risk of high inflation taking root was greatest there.
In the industrialised world, the IMF said, the rise in inflation this year was expected to be "reversed" in 2009. But "in emerging and developing countries, inflationary pressures are mounting faster".
Wholesale food prices stabilise
Global wholesale food prices remained stable in June for a fourth consecutive month, the United Nations' Food and Agriculture Organisation said on Thursday, writes Javier Blas in London.
However, FAO officials warned that although wholesale food prices were moderating, retail prices were likely to continue rising as food companies passed earlier increases on to consumers.
The FAO food index averaged 216 in June, down from 217.5 in May and below a peak of 218.1 in March. The month-on-month fall was possibly due to a fall in meat and dairy prices offsetting rises in cereals, sugar and vegetable oil. The index is still up 30 per cent on the past 12 months.
The February-June period is the longest spell of price stability since the food crisis started two years ago, but prices are stabilising at high levels.