IMF warns of elevated prices in emerging and developing countries to stay through 2022

International Monetary Fund (IMF) Chief Economist Gita Gopinath this week warned that the emerging and developing markets would see continuously elevated prices into next year, stoked by the persistently higher food prices and weaker domestic currencies.

The global economies across advanced, emerging and developing markets, have seen rising consumer and supplier prices since the reopening of their economies after the worst of the pandemic, due to the strains on the supply chains, triggered by the pent-up demand and the disruptions caused by the virus-related restrictions.
Unrestrained fiscal and monetary stimuli are also adding to the price pressures, as evidence that have begun to appear now, suggests.  

While Gopinath broadly expects the recent spurt in inflation in advanced economies could subside towards early next year, albeit with exceptions, emerging and developing markets could experience inflation for a slightly longer period, running into 2022.

“....inflation is expected to remain elevated into 2022 in some emerging market and developing economies, related in part to continued food price pressures and currency depreciations—creating yet another divide,” Gopinath said in a blog post published this week.

Sri Lanka has also seen sharply rising food prices, averaging around 10 percent for months, pushing the overall consumer prices up by 5.2 percent in June from a year ago, according to the Colombo Consumer Price Index.
In June, the food prices soared by over 11.0 percent and the July prices are expected later this week.

The central banks around the world, including Sri Lanka’s, consider the current spurt in consumer prices as “transitory”, a term they often use to mean temporary but doesn’t indicate clear time frame.

The IMF has estimated that the pandemic-induced economic restrictions have reduced the per capita incomes by as much as 6.3 percent a year in emerging and developing nations, relative to the pre-pandemic trends over 2020-2022, compared to a 2.8 percent decline in advanced economies.

Persistently higher inflation, specially in developing countries, coupled with loss of incomes, will deal a double whammy to the people living in these countries, as that could worsen their living standards, pushing them further into poverty.

Therefore, economic restrictions, in whatever form or shape, are not even remotely an option for developing nations such as Sri Lanka, under whatever the circumstances, be it a new virus strain or otherwise.

Post-pandemic recovery has already been on divergent paths for advanced economies and emerging and developing economies, where the growth prospects for the former have been upgraded, while the latter has been assigned a downgrade, due to significantly lower growth forecasts on emerging Asia.