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Rising inflation has implications for the economy – Rezo Nodves



According to a detailed study, global forces are largely responsible for the decline in inflation over the past several decades

Tokyo, Friday, November 9, 2018 ((rezonodves.com)) – While global inflation, which has hit record highs, continued to grow, efforts by developing economies and emerging economies to sustain inflation over the past few decades can be compromised. This is the conclusion of an unpublished World Bank research on inflation in developing and developing economies.

According to the World Bank report under the heading Inflation in new and developed economies: evolution, drivers and politicsthe adverse consequences of high inflation are likely to greatly outweigh the poor, who keep most of their funds in cash and mostly rely on wages, social benefits and pensions. High inflation is mainly associated with a slowdown in economic growth, and, according to the World Bank, it is crucial that inflation is kept moderate and stable in the fight against poverty and poverty reduction. Inequality.

"Recent research on inflation, its causes and characteristics generally does not take into account its effects on developing and developing countries, which is the emptiness that the report intends to fill, says Shanta Devarajan, Chief economist and senior director of the World Bank for Development Economics (Acting). This new study will be used to design policies that will protect the most vulnerable people and businesses from the regressive effects of high inflation. "

In order to understand the impact of inflation on developing economies and emerging economies, the World Bank Outlook Group for the first time conducted a detailed analysis of inflation and its impact on these economies. This new study also includes a global set of data on inflation that covers more than 175 countries in the period 1970-2017.

This study shows a slowdown in structural and political factors that have led to a low level of global inflation over the past five decades, and in particular to the unprecedented integration of international trade and financial markets. Adopting a flexible monetary, foreign exchange and fiscal policy has allowed some developing and developing economies to better control inflation. However, external factors that have kept inflation in the last decades are likely to weaken or disappear.

"Almost five decades, inflation has dropped drastically in many developing and developing countries. This is monumental progress, respect Aihan Kose, Director of the World Bank Development Perspective Group, and co-editor of the report. But in a highly integrated global economy, it may be difficult to keep inflation at a low level in order to reach that level of inflation. These countries have to prepare for sudden changes in global inflation by strengthening their monetary, fiscal and financial policies. "

Focusing on developing and developing countries, this study examines the evolution of inflation and the global and national factors that use it, the impact that inflationary expectations have on price stability and its vulnerability to exchange fluctuations. In particular, the impact of monetary policy and the change in food prices on inflation in low-income countries is analyzed.

"In order to mitigate the impact of shocks on world food prices due to poverty without causing adverse effects, a shadowy political approach is needed. says Franziska Ohnsorge, Head of the World Bank Group for Development Perspectives, and co-editor of the report. The use of certain trade policies to preserve domestic markets from shocks of commodity prices can increase the volatility of world prices and OKnot to protect the most vulnerable. On the other hand, targeted storage policies and social protection schemes can mitigate the negative consequences of these shocks while avoiding the broader effects of other measures. "

Read the report: Inflation in new and developed economies: evolution, drivers and politics

Here are the main findings of the study:

  • It seems that the global inflation cycle was created in 2000. Since 2001, developments in global inflation have been responsible for a significant share of inflationary fluctuations in advanced and emerging economies and in developing countries. development. The impact of this global cycle is particularly strong in developed countries and highly integrated with the global economy.
  • The cycle of global inflation fluctuates by the movement of world demand and sudden changes in oil prices.
  • Inflation expectations are more sensitive to global and domestic developments in developing and developing economies than in advanced economies. They are firmly anchored in developing and developing economies that have a low level of public debt and are more open to trading.
  • Fluctuations in exchange rates can increase the impact of global forces on domestic inflation in developing and developing economies. When the central bank is independent and enjoys good credibility, these fluctuations are much less likely to lead to inflationary pressures. Over the past 20 years, improved central bank policies and a stronger determination of inflation expectations partly explain this lower impact of the exchange rate.
  • It seems that improving the performance of low-income countries in terms of inflation is largely attributed to external forces. If global inflation is rising, these countries can therefore be witnesses of an increase in inflationary pressures.

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