Of course, anyone who pays even the slightest attention to the global economy is aware that inflation is back in emerging economies, so I'm not really sure what they were going for with that cover. Maybe they thought that because everyone knows inflation is bad in emerging economies, people would guess they were talking about inflation in developed economies, and then readers would be surprised to learn that No, the cover actually was referring to inflation in emerging economies after all. The rare double fake-out!
Anyway, there's a long article on inflation in emerging economies. It's somewhat rambling and and disorganized, but it makes some interesting points along the way:
The synchronised jump in global food prices suggests that there is more to the story than disruptions to supply. Prices are also rising partly because loose monetary conditions in emerging economies have boosted domestic demand. These economies have accounted for over 90% of the increase in global consumption of oil and metals since 2002 and for 80% of the rise in demand for grain. This partly reflects long-term structural forces, but it is also the product of a money-fuelled cyclical boom. ... [T]he initial shock to food prices may have come from the supply side, but the strength of income and money growth helps to validate higher prices. Were monetary conditions tighter, rises in food prices might be offset by declines elsewhere, keeping inflation under control.This last part, however, doesn't make sense to me:
...
Analysis by Goldman Sachs, for 1990-2007, confirms that in emerging markets, higher food prices did seem to push up other prices. In most developed economies the link from food to non-food inflation was statistically insignificant. Besides the larger share of food, this has two causes: central banks' credibility is weaker in most emerging economies, so that inflation expectations are less firmly anchored; and real wages tend to be less flexible. Both increase the risk of a price-wage spiral. ...
Inflationary expectations are rising and workers clamouring for pay increases. In a survey of inflation expectations in Argentina, the average reply for the next 12 months was 36%. Russian wages are rising at an annual rate of almost 30%. ... The broad money supply has grown by an average of 20% over the past year in emerging economies, almost three times the pace in the developed world (see chart 4). Russia's money supply has swelled by fully 42%.
China has helped to hold down inflation in developed economies because its goods are much cheaper and they are gaining market share, replacing more costly goods. This will remain true for many years. Competition from China also forces local producers to cut their prices and it curbs wage demands in rich countries. As China moves up the value chain it will pull down the prices of a wider range of products. In other words, China will continue to help hold down global prices—although possibly by less than in the past.If China will pull down the prices of more products in the future, then why would it be holding down global prices "less than in the past"? You could argue that as China moves up the value chain, the products it will make are less likely to be included in the CPI (or other baskets), and thus the prices China will be holding down won't show up in inflation. But I don't think that's what the author was arguing. Am I missing something here?
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