While the global inflation has been falling over nearly past five decades, from a peak of nearly 17 per cent in 1974 to about 1.7 per cent in 2015, several emerging market economies still face risk of high inflation, whose adverse effects can fall disproportionately on the poor, the World Bank has said in a new report.
The report attributed the remarkable fall in inflation over the decades on factors such as an unprecedented international trade and financial market integration, and the adoption of more resilient monetary, exchange rate and fiscal policy frameworks among some emerging and developing economies.
The report pointed out that as high inflation has historically been associated with slower economic growth, making efforts to maintain low and stable inflation crucial for reducing poverty and inequality.
“A nuanced policy approach is necessary to mitigate the impact of global food price shocks on poverty without adverse side-effects,” said World Bank Development Economics Prospects Group Manager Franziska Ohnsorge, a co-editor of the volume.
“The use of certain trade policies to insulate domestic markets from food price shocks may compound the volatility of global prices and may ultimately be counterproductive in protecting the most vulnerable people. Instead, storage policies and targeted safety net interventions can mitigate the negative impact of these shocks while avoiding the broader distortionary impacts of other policies,” Ohnsorge said.
The report said that a reversal in the independence of inflation targetting policies by the central bank, rising protectionist sentiment of recent years, and reform fatigue in some economies are among the factors that could reignite inflation.