Inflation Comovement in Emerging Market Economies : Facts and Drivers

In the last two decades, monetary authorities in emerging and developing economies have adopted inflation targeting. However, such structural reforms have had little success in counteracting persistent inflationary inertia. A probable explanation is the existence of global inflationary factors, which cause economies to experience comovement patterns in the inflationary process. Understanding comovement and its drivers is critical for effective policy execution and in selecting an appropriate response to inflationary shocks. This study analyzes the inflation comovement among developing and emerging market countries, describes its temporal evolution, and estimates the impact of global price-related factors on the degree of comovement. We find that the comovement of inflation rates is very weak among the Commonwealth of Independent States (CIS) , but it is strong among emerging European economies, particularly in terms of food inflation. Moreover, positive changes in global energy and metal prices have a significant impact on the inflation comovement index but not negative changes. It indicates that various economies react differently to reductions in global prices