Rising Inflation Threatens Poor

In emerging markets, the urban middle class and poor will be hit hard by the rising inflation. Already food and energy prices are soaring. Even in US, most of us are finding it difficult to cope with rising gas and food costs.

In this period of recession, the prices of commodities are going up in emerging markets and there seems to be no slowing down. And the worst part is that the situation is not going to ease in the next couple of years.

Emerging markets will face grave problems in controlling inflation and money supply because of the expansionary economic policies of industrialised countries seeking to prevent gridlock in their financial markets, the head of the United Nations Development Programme warned on Tuesday.

“This may cause us a lot of headaches in the next two or three years,” said Kemal Dervis, the UNDP administrator and former economy minister of Turkey, who was the architect of that country’s successful economic stabilisation programme. “We are seeing excessively expansionary economic policies, just as we did when the dot.com bubble burst.”

In an interview with the Financial Times, Mr Dervis said that the urban poor in developing countries were already facing an “inflation tsunami” from soaring food and energy prices, which had made them up to 25 per cent poorer in less than a year.

“We face a new phenomenon of commodity prices going through the roof at a time of recession, or at least slowdown, in the advanced economies. I cannot help feeling that liquidity in the system is looking for an outlet,” he said.

“But how can you tighten your monetary policy in an emerging market when the [US] Fed is lowering interest rates? Countries like Turkey and Brazil, which have been fighting inflation for years, are now facing a real ­inflationary danger that does not result from a macro­economic cycle but from the need to bail out the financial sector.”

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