Bank of America names the emerging market currencies to back as inflation risks mount

Bank of America names the emerging market currencies to back as inflation risks mount

With global demand returning and supply bottlenecks likely to drive up shipping, food and energy prices, Bank of America believes emerging market inflation could be on the horizon.In a note distributed Sunday, EEMEA Cross Asset Strategist David Hauner highlighted that while markets are pricing in the highest U.S. inflation for a decade, emerging market expectations are not following suit, despite being typically more inflation-prone than developed markets.A first sign that an inflation bump could be imminent in emerging markets, Hauner said, was the recent spike in freight rates, as a global trade resurgence and capacity constraints among carriers cause supply bottlenecks. BofA analysts also expect oil prices to double versus 2020 and note that food prices are accelerating."Normally, base effects should be ignored, but we expect them to generate concerns in a market that is already nervous about U.S. inflation," Hauner said.

Spot container freight rates are currently at record-high levels, three times the level at this point last year and twice the full-year 2020 average, though major carriers such as Maersk expect it to normalize in the second quarter of 2021 and beyond.While the long-term outlook is more balanced, he suggested the upside risk remains higher than usual, recommending investors