World Bank: High inflation is a 'global phenomenon'

·Anchor/Reporter
·2 min read

High inflation is not unique to the United States. The World Bank says emerging and developing countries are feeling the pinch of higher prices as well, and are already tightening policies to tamp down on inflationary pressures.

“Inflation is a global phenomenon. What we have seen in recent months, we see pretty much everywhere,” World Bank Chief Economist and Director of the Prospects Group Ayhan Kose told Yahoo Finance on Wednesday.

In the U.S., government data released Wednesday showed prices rising by 7.0% in December — the fastest year-over-year pace observed since June 1982. The U.S. central bank, the Federal Reserve, has signaled it may soon move to curb inflation through higher interest rates.

The World Bank says emerging market and developing countries are experiencing inflation at rates not seen since 2011. Central banks have responded; Brazil, Mexico, and Russia are among the countries where monetary policymakers raised policy rates (thus increasing the cost of borrowing).

A man rides a bicycle past the headquarters of the World Bank Group as the International Monetary Fund (IMF) and World Bank hold their Spring Meetings virtually due to the outbreak of COVID-19, known as coronavirus, in Washington, DC, April 15, 2020. (Photo by SAUL LOEB / AFP) (Photo by SAUL LOEB/AFP via Getty Images)
A man rides a bicycle past the headquarters of the World Bank Group as the International Monetary Fund (IMF) and World Bank hold their Spring Meetings virtually due to the outbreak of COVID-19, known as coronavirus, in Washington, DC, April 15, 2020. (Photo by SAUL LOEB / AFP) (Photo by SAUL LOEB/AFP via Getty Images)

But there could be a trade-off. Dampening economic activity through higher rates may quell price pressures, but could also take steam out of an economic recovery that may not be complete.

In the World Bank’s updated Global Economic Prospects report released this week, the international body paints a bleak picture of the divergence in the COVID recovery. Whereas advanced economies are expected to fully recover to pre-pandemic trends of growth by 2023, emerging market and developing economies are forecast to remain 4% below pre-pandemic trend.

Tightening policy could entrench that divergence during a time when new variants of the virus continue to disrupt trade flows, a critical source of growth.

“This is creating an extremely challenging transition for emerging, developing economies as they look forward beyond the pandemic. Unfortunately the pandemic is still here,” Kose said.

The Global Economic Prospects report estimates that worldwide GDP will decelerate, from 5.5% in 2021 to 4.1% in 2022 and 3.2% in 2023.

Advanced economies, like the U.S., are expected to expand 3.8% in 2022 as emerging markets and developing economies are likely to grow 4.6%.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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