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Could Inflation Continue To Surprise Positively In The Coming Months?

EMERGING MARKETS
  • Since the start of the year, we have seen that CPI inflation prints have surprised positively in both EM and DM markets, raising investors' doubt on policymakers' statement that the spike in inflation will just be 'transitory'.
  • The chart below shows that the Citi EM inflation surprise surged to its highest level since Q3 2008 and could continue to reach to new highs in the coming two months.

Source: Bloomberg/MNI


  • The chart below ranks EM economies based on the latest April CPI inflation print (YoY), with the percentage change since January.
  • At the top of the league, we find Turkey with April CPI surging by 17.1%, followed by Brazil (+6.8%), Mexico (+6.1%) and Russia (+5.5%). Interestingly, while the MXN strength is giving Banxico more time before starting a tightening cycle, the weakness in TRY, BRL and RUB in the past year has pushed central banks to already start raising rates in 2021; the benchmark rate is up 200bps in Turkey, 150bps in Brazil and 75bps in Russia, respectively.
  • China PPI was also very high in April, up +6.8%. We tend to prefer China PPI to CPI as it has a stronger relationship with the 10Y yield.
  • Malaysia is the place where inflation has increased the most since January (ex China PPI), up 4.9ppt since January, followed by Thailand (+3.75ppt) and Mexico (+2.5ppt).
  • On the other hand, CPI inflation has fallen in Indonesia since the start of the year, down 0.1ppt to 1.4%, the second lowest place in the EM world (after China CPI).

Source: Bloomberg/MNI

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