The World Bank expects its economies to grow by 4.6% this year
Suffering from high food prices puts emerging markets between a rock and a hard place
Many Turks can no longer buy fresh food in the markets.
Reuters
In Egypt, the change in the exchange rate of the currency against the dollar and the rise in inflation rates increased the difficulties facing the government.
Reuters
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As is the case for millions in developing countries and emerging markets around the world, shopping for staple foods has gone from a necessity to a luxury for Turkish Selcuk Gemici.
The 49-year-old, who works in a car repair shop in Istanbul, Turkey's largest city, and lives with his wife and two children in his father's house, says fresh produce is often out of reach for his family, who subsist on pasta, bulgur and legumes.
"Everything has become so expensive, we can't buy and eat what we want," Jimici added.
We only buy what we can currently.
My children are not feeding properly.”
Global food prices have risen over two years, driven by the turmoil of "Covid-19" and the woes of the weather.
The shocks to the grain and oil supply made it hit a record in February, due to the Russian invasion of Ukraine, and again in March.
extra stress
Inflation has soared and soaring energy prices have added to the pressure.
Turkey or Argentina, with annual inflation of about 70% and about 60%, may be exceptional cases, but rates are in the double digits in countries from Brazil to Hungary.
This makes US inflation, at 8.3%, appear modest by comparison.
Rising food prices are a hot topic in emerging markets, raising the risk of civil unrest and putting policymakers in a dilemma between intervening with financial support to alleviate the suffering of the population, or preserving government finances.
International Monetary Fund data show that food represents the largest category in the inflation baskets, in the selection of goods used to calculate the cost of living, in many developing countries, and that it represents about half in countries such as India or Pakistan, and on average about 40% in low-income countries.
Food producers have become more prudent.
Over the weekend, India announced a ban on wheat exports, while Indonesia suspended exports of palm oil, to control high prices at home in late April.
The head of global emerging markets research at BNP Paribas, Marcelo Carvalho, told Reuters that food inflation could be longer lasting, as the war in Ukraine disrupts not only food supplies, but fertilizer supplies as well.
"This is here to stay," Carvalho added.
Food is very clear, when there is a change in food prices, the perception about inflation is inflated which feeds inflation expectations that are not easily curbed.”
A difficult situation
For Um Ibrahim, a 60-year-old widow and peddler selling scarves in front of a mosque in the middle-class neighborhood of Nasr City, Cairo, providing food for her four children has become more difficult.
"All the prices have gone up, clothes, vegetables, poultry and eggs, what should I do?" she asked while placing her goods on a piece of cloth.
Egypt, one of the world's largest wheat importers, saw inflation soar to more than 13% in April and is expected to raise interest rates again at this week's meeting, after devaluing the currency by 14% in mid-March.
Emerging market policymakers, having raised interest rates by hundreds of basis points cumulatively since 2020 to curb price pressures and ensure a bond premium over rising US yields to investors, must balance taming inflation and maintaining fragile growth at a time of rising interest rates. Globalism.
The World Bank expects emerging economies to grow by only 4.6% this year, compared to a previous forecast of 6.3%.
There are no easy solutions
Paulina Cordyavko, head of emerging market debt at BlueBay Asset Management, says governments have three options: provide more support to consumers, allow prices to rise and confront inflation and social unrest, or do something in between.
"There are no easy solutions," Kurdiyavko added.
A handful of countries have taken measures. Turkey raised the minimum wage by 50% in December to tackle a currency collapse and rising inflation.
Chile will raise the minimum wage this year as well.
The South African government is looking into whether to increase the welfare grant, which was launched in 2020, and make this program permanent.
Economists fear that emerging economies will face a new wave of turmoil on the back of recent increases in food prices.
North Africa, where food price inflation was one of the causes of the Arab Spring revolutions nearly a decade ago, seemed particularly vulnerable, said Beata Gavorcic, chief economist at the European Bank for Reconstruction and Development.
"The irony of this war is that while everyone expected Russia to experience a crisis, the countries of North Africa are in fact the closest to facing an emergency due to high food prices," she added.
But the pressures are expected to extend further.
Risk advisory firm Verisk Maplecroft said last week that three-quarters of the countries expected to be at high risk or at high risk of civil unrest by the fourth quarter of 2022 are middle-income countries.
BNP's Carvalho said easing inflation pressures through spending would come at a financial cost that could lead to more trouble later.
"In emerging markets, financial sins are forgiven but not forgotten... Over the past two years, everyone has felt like they had a blank check, in part because interest rates were so low," he added.
Now that interest rates are starting to go up, it's getting more and more difficult.”
• Global food prices have risen over two years, driven by the "Covid-19" disruptions, and the woes of the weather. The shocks to the grain and oil supply made it hit a record in February, due to the Russian invasion of Ukraine, and again in March.
• Rising food prices are one of the hot topics in emerging markets, which increases the risks of civil unrest, and puts policymakers in a dilemma between intervening with financial support to alleviate the suffering of the population, or preserving government financial resources.
• International Monetary Fund data show that food represents the largest category in the inflation baskets, in the selection of goods used to calculate the cost of living in many developing countries, and that it represents about half
• In countries such as India or Pakistan, on average about 40% in low-income countries. In emerging markets, financial sins are forgiven but not forgotten.. Over the past two years, everyone has felt like they had a blank check, in part because interest rates were so low. Now that interest rates are starting to rise, it's getting more and more difficult.
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