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Alternative Market Briefing

While inflation is worrying emerging markets, an early stimulus withdrawal can cause a double dip

Thursday, May 13, 2010

From Sagar Chakraverty, Opalesque Asia:

Central banks and finance ministers’ drastic monetary and fiscal policy measures in response to the credit crisis have raised fears of inflation. Yet inflation risk continues to appear limited in most industrialized nations, said the Credit Suisse analysts in a recent report. However, “inflation risks are mounting fast” in emerging markets.

After the 2008 crisis, emerging markets relaxed monetary policies to increase domestic demand. In particular, China and India have granted voluminous loans at cheaper rates for infrastructure projects, which have led to economic overheating particularly in real estate. Another fall out of faster economic growth can be seen in rising global commodity prices on the back of voracious commodities consumption in China and other Asian markets.

The IMF forecasts inflation in emerging economies to accelerate by almost a full percentage point to 6.2% in 2010, which is nearly five percentage points above its forecast of 1.3% for the world's most advanced economies.

"2010 is a year of complex policy-making. There is a V-shaped recovery but there are threats to this recovery," saidNoeleen Heyzer, Under-Secretary-Genera......................

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