Krosby of Prudential: Emerging Markets Face Inflation Risk From Central Bank Activity

“Emerging-market economies face inflation risk as policymakers around the globe cut interest rates to stimulate growth, said Quincy Krosby, chief market strategist at Prudential Financial Inc.’s annuities business.

“Central banks globally and in emerging markets have been very active,” Krosby said Tuesday at a presentation in New York. “Inflationary pressures are building.”

Brazil, Latin America’s largest economy, cut its benchmark rate 10 straight times through October, leaving it at 7.25 percent, the lowest level ever. The U.S. Federal Reserve has pledged to hold interest rates low and is buying bonds to spur growth. In China, economic expansion is projected to quicken this year after stimulus efforts in 2012, according to economists’ estimates compiled by Bloomberg.

“You will see inflationary pressures start to assert themselves in a way that you know that they’re going to have to tighten,” Krosby said. Emerging-market central banks may need to raise rates, slowing growth, she said.

Inflation in Brazil has exceeded policy makers’ 4.5 percent target for 27 consecutive months, and stood at 5.53 percent in November. As emerging-market economies grow, rising demand for industrial metals and agricultural commodities can push prices higher, Krosby said.

Sharply rising prices aren’t likely in the U.S., Krosby said. U.S. consumer prices rose 1.8 percent in the 12 months ended in November, according to data from the Labor Department. A faster pace of increases may signal a healthy economy, she said…”

Full article