Alternative inflation metrics suggest developed markets are more worried than EMs

As renewed hostilities continue in the Middle East, we continue to monitor global inflation. Permutable’s Sentiment Score suggests emerging markets have been more resilient than their developed counterparts.

Permutable’s high-frequency dataset covers 95 countries and serves as a fast-moving, leading proxy for underlying price pressures well ahead of official CPI releases. Inflation sentiment spiked in July, but especially so for G7 countries: only Japan and Canada didn’t see inflation worries return to April-May levels.

Subsidy programs in some emerging markets are shielding drivers from increases at the pump. And more broadly, EMs have much better macroeconomic fundamentals than they did in crises past. The spreads between EM and DM inflation and interest rates have compressed to historic lows; with less onerous post-pandemic debt burdens, EMs also feel more able to shoulder subsidy programs rather than let a price shock pass through.