December 2nd, 2010
02:03 AM GMT
Inflation has been far from our minds when following the BRIC economies on World Business today. However, the sell-off in emerging market equities that followed Chinese inflation data last month is a reminder that inflation remains a risk in the world’s hottest emerging markets known as BRIC.
China has announced a two year high in its year-on-year increase in consumer prices, at 4.4 percent. India’s inflation is running at 8.6 percent, 7.5 percent in Russia, and 5.2 percent in Brazil. Brazil’s consumer prices rose 5.5 percent in November, the biggest jump in 20 months, and that’s with the central bank’s overnight lending rate at 10.75 percent, up from 8.75 percent.
Here’s the concern: If the BRIC economies try to control rising inflation by hiking rates and slowing growth, who will carry the economic growth banner for the rest of the world? Will these economies sputter?
In addition, it is often the poor who suffer with inflation in emerging markets because they spend a large portion of their income on food. Food inflation is high in the BRIC block, for example, 10.1 percent in China, and 15.7 percent in India.
Brazil, Thailand, and Taiwan are among countries that are trying to tame inflation through capital controls, and economists say there is increasing pressure for more measures.
Russia may be a notable exception. It’s struggling compared with the other BRICs, so much so, that social media is awash with suggestions that Indonesia or South Africa replace the “R” in the acronym.
So we’d have BIIC?
Not so fast says David Spegel, global head of Emerging Markets with ING. “Russia is the only major energy exporter among the BRICs,” he says. It’s a large equity market, “and Russia has the largest market for external bonds (US$211bn)… so for financial markets it would be difficult to extract.”
Spegel says don’t expect a re-branding of BRIC any time soon. And let’s keep our eyes on inflation and capital controls in the block.
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