Soaring food and energy prices have pushed inflation to uncomfortably high levels. In Brazil consumer prices are 9% higher than they were a year ago , more than twice the central bank’s target. In Russia inflation is 6.5%, well above the central bank’s aim of 4%. Inflation in India, which had been high in 2020, rose above 6% this summer—north of the Reserve Bank’s target range. Policymakers in poorer countries have navigated a fraught path this year.
That, in turn, has placed pressure on governments to extend or even increase spending on relief programmes. Economic growth is boosting tax revenues in many countries, improving the public finances that were battered by covid-19. Still, fiscal deficits remain large. A decision in June to expand grain handouts means that India’s central government is likely to borrow more than the 6.8% ofexpected in the budget for the 2022 fiscal year. Brazil, which borrowed an eye-watering 13.
This determination to curb inflation may have kept foreign investors interested. Early this year some economists worried that a roaring recovery in America and the prospect of higher interest rates there could lead to a rush of money out of emerging economies: an echo of the “taper tantrum” of 2013, when the Federal Reserve began normalising monetary policy after the financial crisis.
By comparison, recent exchange-rate wobbles have been modest, which has limited the extent to which higher import prices add to inflationary pressure. So far this year the Brazilian real and the Indian rupee have weakened against the dollar by about 2%. Vigilant central banks probably helped keep investors from growing skittish.