Janet Yellen and Mario Draghi have a new reason to consider what International Monetary Fund chief Christine Lagarde calls the “ogre” of deflation: eroding confidence in emerging markets.
Weaker growth from Brazil to South Africa risks unleashing a “disinflationary impulse through the global economy,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York. Cheaper commodities, slower trade and sliding exchange rates in developing markets all could soften price pressures internationally.
That in turn could force Federal Reserve Chair Yellen and European Central Bank President Draghi to keep monetary policy loose for longer, increasing the attractiveness of their financial assets even at the threat of creating asset bubbles.