Consumer Prices in Low-Cost Countries - Currency Changes vs US Dollar

Inflation Rates in Emerging Countries Monthly Report

Inflation in emerging countries has overall continued to decline in June, but a rebound in food prices could result in higher apparel production costs in second half this year. Our monthly report offers a comparison of inflation rates in low-cost countries, with historical data available back to June 2007, as well as a comparison of currencies and the evolution of food prices indices.

Most emerging countries kept an annual inflation rate below 9% in June.

The exceptions are Pakistan, which was at 11.30%, and Sri Lanka at 9.30%, its highest level since April 2011.

These two countries have also experienced a further depreciation of their currency against the dollar which will increase their inflation to commodity and oil imports.

The case of Vietnam is noticeable as its government has been able to reduce its inflation from 14.2% in March 2012 to 6.9% in June - or 7% over a quarter.

China's Inflation Eases Sharply

China's consumer price index eased to 2.2% in June, down from May's 3.0%, its lowest point since Jan 2010.

The drop was twice as large as expected, this is mainly due to the drop of its volatile food inflation to 3.8% from 6.4% the previous month.

This is also in relation with the fact that the Chinese economy grew at 7.6% in the second quarter of 2012, its slowest pace in almost three years.

Now that inflation seems out of the way, China’s major concern will be to restart economic growth.

For this, the government has already lowered twice the interest rate in the month of June.

Rebound in Food Prices Ahead

The adjustment in energy and commodity prices has helped to ease pressure on household budgets in emerging countries, reducing the manufacturing cost of clothing.

The FAO Food Price June index, was 201 its lowest level since September 2010, representing a fall of 15.4% down from its May 2011 peak at 238 points.

FAO said commodity prices have recently started rising again, mostly because of adverse weather, which may result in a rebound of the food price index in July.

We still have to watch for a returning inflation over the two next quarters, especially with the potential rise in food prices with the two droughts in Russia and the USA, or an increase in commodity or oil price.

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