Emerging market inflation and output gaps

While there has been talk about the emerging market inflation, all of the countries cannot be placed in the same bucket. The inflation rates across countries can be divided or conditioned on the output gap within the country. Those countries which have high output gaps generally do not have inflation worries while most countries which are facing high or increasing inflation rates do have strong output gaps. Countries which have some output gap and inflation worries are usually those with a commodity focus. Consistent with economic theory, those countries which have economic slack will have less price pressure.

The places to worry about inflation include the following:

Overheating economies - inflation and negative output gap -Argentina, China, South Korea, and Singapore

Inflation and no output gap - Brazil, India and Poland