Global Currency Depreciations Worsens Inflation across Emerging Markets

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The disruptions to food supply chains due to COVID-19 has affected both the production and distribution of food, consequently putting pressure on inflation in many nations.

This has also exacerbated currency depreciation in some regions, as the virus is anticipated to lead to an increase in food insecurity in Latin America, Sub-Saharan Africa and South Asia.

Fiscal authorities in some of these countries have sought to provide fiscal buffers for their respective economies, for example, South Korea, which announced a supplementary budget to cushion the reeling effects of the pandemic.

Currency Depreciations Worsens Inflation across Emerging Markets Brandspurng

The worst-hit currency in the emerging markets in October was the Turkish Lira, which has lost 39.42% in 2020 – a development which has contributed to its rising inflation (11.89% YoY in October). The narrative in the US and Eurozone is however different.

Although US inflation reached a six- month high of 1.4% in September, it remains below the 2% Fed benchmark.

Eurozone inflation remains in the negative zone at -0.3%, following lower in energy prices, a temporary reduction in the VAT rate in Germany, and stronger Euro which made imports cheaper.

This was further exacerbated by the fall in oil prices.

Crude oil prices declined by 8.48% in October to settle at USD37.46. This reflects the sentiment birthed by the rising COVID-19 cases in France, Germany and the UK.

Fears of crude oil demand falling short of initial expectations crept into the oil futures as bearish sentiment began to build amongst traders.

A stronger dollar, increasing stability in Libya and the possibility of the US lifting sanctions on Iran should Joe Biden win the 2020 elections have further pressured oil prices.

Whilst compounding factors weigh on oil prices, we envisage notable response from OPEC+ to support the oil market in 2020, as alluded to in our previous expectations.

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