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By HaleStewart February 4, 2014 8:34 am
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The "Problem" Emerging Markets All Have Have One Thing In Common: Inflation

Consider the following chart:

This is the weekly chart of DBC, which broadly tracks commodity prices.  Notice it's near a three year low, telling us cost-push inflation is not a problem.  And the larger developed economies such as the US, EU and Japan are all dealing with potential deflation.  Simply put, we have adequate supply and insufficient demand at the global level to fear an inflationary scenario.

In contrast, most of the emerging markets that are causing concern have inflationary pressures. 

The lowest inflation reading we've seen from Brazil over the last two years is 4.92%.  Elevated readings near and over 6% are the norm for the last year.

Readings over 6.5% are common for India right now.  This high inflation rate has forced the new central bank head to raise rates at the last few meetings.

South Africa has been printing inflation over 5.3% for the last year.  And this is occurring while the contry has incredibly high unemployment -- over 20%.

And Turkey has been priting over 7% inflation for the last 8 readings -- at a time when their unemployment rate is 9.7%.

While inflation does not explain all of the problems faced by these countries, it is clearly a contributing problem.  And considering the most of these countries also have high unemployment, we can conclude there are systemic issues at work.

Hale Stewart is a former bond broker who has been writing about economics and financial markets since 2006 on the Bonddad Blog.  He is also a tax attorney with a domestic and international practice while also forming and managing captive insurance companies for US companies.   You can follow him on twitter at:@captivelawyer

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