The FINANCIAL — In 2013, global inflation will cool on its 2012 level, going from 4.0% to 3.9% as the effects of the economic slowdown in 2012 continue, albeit to a lesser extent.
Developed countries will see inflation rise from 2.1% in 2012 to 2.3% in 2013 as slightly faster real GDP growth boosts prices, while emerging markets will see inflation fall to 4.4% from 4.5% in 2012 as their growth patterns become more sustainable and the threat of overheating wanes.
en the difficult year faced by most economies in 2012, 2013 will be less tumultuous, at least as far as inflation is concerned. Inflation is a key indicator in terms of deciphering how consumers and business will spend their money, when they'll spend it as well as what they'll be spending it on, so the trends we're forecasting for 2013 are slightly more reassuring than those seen in 2011 and 2012. However, volatility in food commodity prices and higher annual oil prices will put upward pressure on prices in 2013 and these are key threats that may impact consumer and business expenditure in 2013.
Developing economies on the whole will see inflation ease slightly, as the high real GDP growth rates seen in recent years cool down. For the more mature emerging markets such as India and Mexico, this is a good thing as it means growth rates are becoming more sustainable and we're less likely to see countries overheating which has the potential to result in hyperinflation. The Middle East and Africa will have the fastest rising prices in the world in 2013 as a region, with inflation of 9.3% forecast. This is a 1.6 percentage point increase on the 2012 figure going against the overall trend for developing economies in 2013, but with so many frontier economies in the region these price rises will help to boost real economic growth and inflation in the region is expected to fall back again in 2014.
Developed countries, on the other hand, are looking to kick-start real economic growth in 2013 following the downturn in 2012, particularly in North America and Western Europe. Output was so poor in some countries that prices stayed static or even fell in 2012. Japan is an extreme case but it will be the only economy in the world that will actually see deflation in 2013, which is a situation whereby price levels actually fall due to an overvalued currency and uncompetitive labour and exports. Western Europe and North America will both see inflation levels dip slightly in 2013 as prices are forced downward by the on-going turmoil in the eurozone, the threat of a triple dip recession in the UK and the fragile recovery taking place in the USA.
Eastern Europe is set to see its price levels grow at the same rate in 2013 as it did in 2012. Economic growth in the region has been stunted by the global economic downturn as well as its integration with the EU and the troubled eurozone economies. It's also becoming less competitive in terms of labour and manufacturing as more cost effective alternatives in Asia Pacific and the Middle East and Africa attract investment from companies that previously would have considered Eastern European economies for offshoring opportunities.
Belarus is expected to have the highest inflation level in Eastern Europe for the third year in a row in 2013. A currency devaluation in May 2011 to bolster competitiveness paired with high levels of government expenditure and elevated energy prices all contributed to astronomical price levels which the government is attempting to reverse through higher interest rates, wage restrictions and tighter fiscal policies in 2012;
Georgia, which suffered from falling prices in 2012, is set to see a 5.0% increase in price levels in 2013. In 2011, inflation was the third highest in the region at 8.5%. This pattern of high inflation and deflation levels suggests the government is struggling to stabilise prices. One-off factors from 2012, such as the appreciation of the Georgian currency and lower food prices should be less impactful in 2013 and in the medium-term Georgia will see price levels move back towards a more sustainable level;
Uzbekistan will have the fastest growth in prices in 2013, with 10.7% growth on the cards. The economy is growing rapidly and rising wages and pensions as well as high price levels for basics such as food and energy are impacting inflation;
Russia, the largest economy in the region, will see prices rise by 7.1% in 2013, despite real GDP growth slowing marginally on its 2012 rate. Oil prices play a massive role in Russia's price levels, so forecasted rising annual oil prices in 2013 explain the expected rise in Russian inflation this year.
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