In the upcoming year, sovereigns in the region of emerging economies, including the UAE, may anticipate a fall in inflation levels but tight financial circumstances, according to a new study from Moody’s.
Consumer prices are expected to fall in 2019 as a result of monetary policy stiffening after reaching a peak in 2022. Inflation in the UAE is predicted to be less than 5%, which is lower than that of other nations like South Africa, Egypt, India, Hungary, Mexico, Poland, Nigeria, Romania, Colombia, and Chile.
A shift to lower inflation rates, according to Moody’s, might take some time.
As tighter monetary policy slows demand growth and supply-chain disruptions ease, EM inflation will spike in 2022 and then fall steadily in 2023, according to Moody’s. By the end of 2022, inflation will be above 6% in more than 50% of emerging markets, compared to only a fifth of EMs doing so in 2019. Food and fuel prices will continue to drive inflation because they make up a significant portion of the consumer basket.
UAE price inflation
The impact of rising prices for commodities and other necessities has been felt by consumers. The UAE’s headline inflation rate increased from 3.4% to 6.8% in the second quarter of the year. As stated by the Central Bank of the UAE, the modest rebound in rents in Dubai” is what is responsible for the inflation. Food prices have increased as well, which is a result of the escalating worldwide prices.
According to Moody’s, while inflation in developing markets would decline the next year, central banks would maintain a tight monetary policy.
Despite Moody’s prediction that EM inflation will decline, the rating agency stated that there is still a chance that it may spread out as a result of entrenched high inflation expectations. The EM region’s general financial situation will remain tight in the upcoming months. However, it is not anticipated that the situation will get substantially worse or return to what it was prior to the pandemic.
Between January and October 2022, total emerging market portfolio outflows are anticipated to reach $80.1 billion. The withdrawals are less than the $93.2 billion total seen in March 2020. The strong US dollar will continue to put pressure on emerging markets.
However, there won’t likely be a systemic debt crisis because EM sovereigns with higher ratings are anticipated to perform better than their contemporaries.