The narrowing internation inflation gap

The international inflation gap has fallen to a decades-long low, as the inflation rates in developed countries increase and the inflation rates in emerging markets decrease. This may indicate that the developed countries are growing stronger and the emerging markets are growing weaker, as the economy that has a higher inflation rate tends to have a higher economic growth rate as well. However, this could be acceptable for both groups. The developed countries currently have been enjoying low unemployment rates, stable economic growth. Meanwhile, this is good for the future trade for the emerging markets. The inflation rates in the developed countries increase means their domestic goods and services are becoming more expensive, they are likely to consume more imports which are likely to be cheaper. While the inflation rates in the emerging markets decrease mean their domestic goods and services are relatively cheaper. Their exports could become more attractive in the developed countries and they are more likely to import fewer goods and exports as their domestic goods and services are already very cheap. Therefore, their current accounts could improve a lot.

However, under protectionism, it will become a totally different story. It could give the developed countries more benefits in a short term period. Emerging markets have their economies based on the international trading. Under protectionism, their exports will reduce, meanwhile because of their technological disadvantages, certain types of goods and services are largely dependent on importing from the developed world. Therefore, in a short period of time, the developed countries are at advantageous positions. However, in the long run, the developed countries could lose more. Firstly, the increasing inflation rate lifts their domestic living costs of ordinary people. Secondly, the emerging markets' dependence on their advantageous technologies weakens over time. Thirdly, their economies are losing specialisation's advantages. Because many goods are produced by the emerging markets, once they reduce imports from the emerging markets, they now need to produce these goods by themselves, The costs of production are much more expensive and the economy has to produce most types of goods and services themselves. Under such situation, they can no longer specialise themselves in some particular sectors.