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  • Emerging Markets Debt Daily

    EM Inflation Goes Awry?

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    February 14, 2020
     

    What’s going on with emerging markets inflation? We saw several surprises in the last 24 hours, with the biggest downside surprise coming from… Argentina. Yup, you heard me right, Argentina. The first reaction in our corner was: “Are they cooking the books while the IMF is actually in town?” However, a closer inspection revealed that monthly inflation was pulled down by lower increases in regulated tariffs (many of which were frozen after the presidential elections). Monthly food prices were still up 4.7%, so things there are “normal”.

    One region where inflation goes up in what looks like leaps and bounds is Central Europe. Czech headline inflation accelerated unexpectedly to 3.6% year-on-year (vs. 3.2% expected), fully justifying the central bank’s decision to hike its key rate earlier this month. Polish headline inflation also went ballistic in January (a whopping 4.4% year-on-year), prompting concerns that the central bank (NBP) is falling asleep at the wheel. A 16% minimum wage hike explains a big portion of the increase, but several other components also surprised to the upside. The wage hike will undoubtedly be considered a “transitory” factor by the NBP, but today’s release should give more ammunition to the central bank’s hawkish dissenters.

    South Africa’s State of the Nation address wasn’t that bad actually. Many commentators appreciated the renewed focus on electricity self-generation and independent power producers. I personally liked the emphasis on spending/wage bill cuts, as well as the drive to conduct spectrum auctions before year-end. The next important stop is the 2020 budget, which will show just how serious the government is about fiscal adjustment. There was some political theater at the very beginning—President Cyril Ramaphosa’s speech was interrupted and delayed by the opposition EFF (Economic Freedom Fighters) faction. This was yet another reminder that political noise will not go away any time soon.

    À propos: There is a moment in everyone’s life when you realize that your cultural references differ wildly from younger generations’, (a sophisticated way to say: “When you realize you are no spring chicken anymore”). I went to a store to buy some groceries and saw “Soylent” … and it was green (no kidding—see picture below). I could not stop giggling while documenting the whole thing. The guy next to me was laughing even louder. A teenager nearby asked: “What’s so funny?” Dude!? Soylent Green!? Magnificent Charlton Heston!? His famous “Soylent Green is people!” line at the end of the movie!? Somebody should send a DVD to the company that makes this drink … I mean, unless the dystopian future is already here …

    Chart at a Glance: South Africa Manufacturing Falls To A Multi-Year Low

    Source: Natalia Gurushina

  • IMPORTANT DEFINITIONS & DISCLOSURES  

    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

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