Institute of International Finance (IIF) has released a macroeconomic report titled “Are commodity prices a threat to EM inflation” where it states that Inflation in the emerging markets (EM) is expected to stabilize in the second half of 2021 due to the lowering of commodity prices in the coming months.
As the global economies make recovery from COVID19 shock and revives the activities, major commodity prices have risen significantly including Brent crude, natural gas, and coal which increased by 40%, 17%, and 55% respectively in last one year period.
“Higher prices can, thus, boost domestic growth and, in many cases, lead to current account improvements. However, commodity prices are also an important driver of headline inflation dynamics as commodities account for a large share of merchandise imports. Should elevated commodity prices persist—some even call current events the beginning of a commodity supercycle—some EM and FM would be particularly exposed in terms of headline inflation pressure,” added the IIF.
The General Inflation in Pakistan has remained above the 10% in past couple of months while average for FY2021 is expected to touch 9%.
IIF has also mentioned that inflationary impact from rising commodity prices is evident, however emerging and frontier markets have tackled the situation well by increasing the emergency stimulus and some emerging and frontier markets dialing back their stimuli.