{"id":236263,"date":"2010-01-27T06:49:00","date_gmt":"2010-01-27T11:49:00","guid":{"rendered":"http:\/\/www.businessinsider.com\/morgan-stanley-complacent-markets-arent-seeing-the-sharp-rise-in-emerging-market-inflation-2010-1"},"modified":"2010-01-27T06:49:00","modified_gmt":"2010-01-27T11:49:00","slug":"morgan-stanley-complacent-markets-arent-seeing-the-sharp-rise-in-emerging-market-inflation","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/236263","title":{"rendered":"Morgan Stanley: Complacent Markets Aren’t Seeing The Sharp Rise In Emerging Market Inflation"},"content":{"rendered":"

\"inflation\"<\/p>\n

Since global monetary tightening<\/a> continues to be our big theme right now, here’s a note from Morgan Stanley global EM macro strategy analyst Rashique Rahman on the specter of emerging market inflation:<\/p>\n

Our inflation impulse gauge suggests a sharp rise in measured (headline) inflation in EM in coming months. Our inflation impulse gauge (IIG) measures the association of external factors to measured inflation in emerging economies. The indicator continues to rise, due most recently to a rise in agricultural commodity prices. The recent trajectory of EM CPI is consistent with this reading, with a noticeable pick-up in late 4Q09 and led initially by China and AXJ. <\/p>\n

 Though not their central case, our economists see EM inflation at 6.1% (YoY) by end-2010 and 6.5% by end-2011 in an upside risk scenario (versus their base case of 4.5% and 5.0%, respectively), not out of line with what the IIG is signalling.* Our Asia economists have already suggested there is increased risk to their call for gradual monetary policy tightening and exit of stimulus in the region.** <\/p>\n

 Yet based on a CPI trajectory consistent with 2008\/2009, inflation breakevens in select EM are tending to discount potential upside risks to inflation 

We continue to sense a considerable level of complacency in the market with respect to the upside risks to EM inflation from here – as was the case in late 2007\/early 2008<\/span><\/strong><\/span>. There are several important market implications.<\/p>\n

So, how is Morgan Stanley’s Inflation Impulse Gauge measured?<\/p>\n

Here you go:<\/p>\n

IIG is an indicator developed to track how external factors influence
measured inflation in emerging markets. It is made up of five factors: (1)
OECD M1 growth (as a proxy for global liquidity conditions), (2) agricultural
commodity prices (as a proxy for food prices), (3) energy commodity prices,
(4) gold prices (as a proxy for inflation hedges), and (5) trade-weighted US
dollar (as a proxy for import price pressures). <\/p>\n

The indicator is factor weighted, and largest weights in the indicator are M1
growth and agricultural commodity prices (each 37.5%), followed by energy
prices (12.5%) and then gold and trade-weighted US dollar (each 6.25%).
For the fast reading (shown here), we measure the three-month rolling
change in all five of the indicators. <\/p>\n

The fit of IIG against AXJ CPI is much better than for CEEMEA and Latin
America, suggesting much quicker and stronger pass-through of external
factors to measured inflation for AXJ than for the other two regions. <\/p>\n

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See Also:<\/b><\/p>\n