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EM by EM #38: Inflation returning with a vengeance?

As the US CPI is set to maintain its resilience, several sectors are contending with margin pressure due to the slower decline in costs. In the world of emerging markets, the soft landing appears to be losing steam, running on fumes. Meanwhile, finance ministers are once again in the limelight as 2024 unfolds as a pivotal election year globally
2024-01-11

As 2023 drew to a close and the disinflation narrative began to lose steam, we refrained from countering it, primarily due to the favorable liquidity conditions that Powell’s pivot had only served to enhance.

However, as we entered the new year, geopolitics once again took center stage, causing investors to pull back from the recent rally. Liquidity in emerging markets experienced a sharp decline in tandem with this shift, following a streak that had previously reversed the pain experienced during the autumn.

Chart 1: DXY vs Bloomberg Emerging markets

In all modesty, we had harbored skepticism about the inflation repricing, or to be more precise, we had anticipated it, profited from it,

As the US CPI is set to maintain its resilience, several sectors are contending with margin pressure due to the slower decline in costs. In the world of emerging markets, the soft landing appears to be losing steam, running on fumes. Meanwhile, finance ministers are once again in the limelight as 2024 unfolds as a pivotal election year globally

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