With consumer price inflation in industrial nations expected to average less than 3% next year for the fourth year in a row, attention has shifted to the developing world, where high and volatile inflation (averaging 50% and above) has long been the rule. And there the news, observes economist Joseph P. Quinlan of Dean Witter Reynolds Inc., is "extraordinarily good."
The International Monetary Fund reports that consumer price hikes in developing nations have been slowing sharply for more than a year--from a 12-month average increase of 73% in June, 1994, to under 29% by June of this year. For 1995 as a whole, Quinlan expects the rise to come in under 25%, its lowest level in 15 years.
In part, this showing reflects the current slowdown in industrial economies, softer commodity prices, and heightened global competition. But the most significant factor, says Quinlan, has been the adoption of economic reforms in response to domestic economic crises and pressure from international lending agencies. Taking a cue from fast-growing Pacific Rim economies, many nations have implemented privatization, deregulation, fiscal and monetary discipline, and trade and financial market liberalization.
The results are apparent around the globe. In China, inflation is running at half the 27% rate of a year ago. In Brazil, its monthly pace is down to 2% from 40% in early 1994. From Bulgaria, the Czech Republic, Slovakia, Poland, and Slovenia to Argentina, Ecuador, and Peru, price hikes have slowed sharply.
While still far from single digits, future inflation in developing countries may well prove more contained and less volatile than in the past. "Once nations open up their economies," notes Quinlan, "they are exposed to the swift and often brutal discipline of the markets."