Can Emerging Countries handle Inflationary Pressure?

Recently I have read an Article titled “Inflation: The Great New Divide - Capital from the low-growth West fuels price increases in Asia” by Peter Coy. In this article he clearly expresses his views on how Emerging countries are facing Inflationary pressure along with pressure of the role of locomotive to the Global Economy. He also clearly states that how India and China is playing a major role of locomotive to pull the Global Economy out of recession.


In this article he states that “For most of the post-World War II era, the U.S. was the locomotive that pulled the global economy out of recessionary valleys. This time it has been emerging-market nations, mostly Brazil, China, and India that have surged, carrying the U.S. along like a big, fat caboose. Exports accounted for a little more than half of the growth the U.S. economy managed to generate in late 2009 and early 2010, according to data compiled by the Commerce Dept. About 40 percent of U.S. exports went to emerging markets”


He fears that the “…. inflation in emerging markets—and near-deflation in developed economies—could slow the growth train”. In context of India and China he states that “Chinese and Indian policymakers are trying to cool things by curbing government spending, raising interest rates, or both. If they accidentally crack down too much, they won't be able to play the role of locomotive. That would be a blow to a U.S. economy that is already threatened with a pause or, at the extreme, a double-dip recession.”


Regarding Japan and Europe economy he expresses that “…. at risk are Japan and Western Europe, which, like the U.S., are wealthy but slow-growing and facing deflationary pressures”. According to Economist Dr. Edward Yardeni (in an interview with Bloomberg Businessweek) "The inflation problem is in exactly the countries you don't want an inflation problem"


Peter coy further states that “The accompanying graphic tells the story of a divided world. On the right are large, light-colored bubbles representing India, China, Turkey, and Brazil. These are countries with relatively low incomes, rapid economic growth, high inflation rates, and increases in inflation over the past year. The other prominent cluster is the wealthy nations in North America and Western Europe, plus Japan and Australia. They have higher incomes, slower growth, lower inflation rates, and smaller increases in inflation. Japan (diamond-shaped) is the only country suffering outright deflation. Russia's big drop in inflation makes it an outlier, befitting its halfway position between the rich and poor nations”. At the end of this article he gives a punch with a statement “The Bottom Line: The world economy is evolving into inflationary and near-deflationary zones. Emerging markets must slow down without crashing”. (For Full Article: http://www.businessweek.com/print/magazine/content/10_32/b4190010426918.htm)


It is true to that Emerging Economies are facing Inflationary Pressure and Developed nations are facing Deflationary problems. Dr. Edward Yardeni Rightly said in his interview to Bloomberg Businessweek that "The inflation problem is in exactly the countries you don't want an inflation problem".


Now, the Major worry is that if these Emerging Economies fail to handle the Inflationary Pressure (in an appropriate manner) then the entire global economy may fall into another Depression (yes, not mere Recession). One can be sure to certain extent that it may not happen in such manner because these Emerging Economies are well known for their policymaking ability. But, we need to watch how they tackle the current problem of Inflation without affecting their growth rates and their role of locomotive for other countries across the globe.