NEW DELHI/SAO PAULO/ISTANBUL -- Consumer prices have spiked in many emerging countries due to the coronavirus pandemic, tying the hands of central bankers that wished to use looser monetary policy to shore up disrupted economies.
The global downturn has taken a toll on emerging-market currencies as investors shun economies seen as fragile. This toll has raised the cost of imported products and pushed domestic prices upward.
This leaves central banks with a dilemma: Cutting rates to stimulate the economy risks accelerating inflation, inflicting more pain on consumers, but raising rates to tamp down inflation could further chill an already sluggish economy.
A grocer in New Delhi bemoaned a recent surge in vegetable prices, as onions and potatoes -- necessities for curry -- both cost about 10% more in September than in August.
"I'm constantly asked to lower my prices, and some customers will buy only half the produce they planned to buy," he said.
India has the second-highest number of reported coronavirus cases, at more than 6.5 million, and transportation bottlenecks caused by the pandemic have led to food shortages in urban areas. The consumer price index for vegetables jumped 11% on the year in August, while meat and fish surged 16%, government data shows.
Energy prices have risen as well, due to the weaker rupee. The overall CPI climbed 6.69%, the third straight month above 6%.
India's economy shrank a record 23.9% in the April-June quarter, and some analysts forecast a contraction of more than 10% for fiscal 2020 as a whole. This plunge normally would call for interest rate cuts to support the economy, but doing so could drive prices even higher.
The Reserve Bank of India had been expected to stand pat on rates at its now-postponed Oct. 1 monetary policy meeting.
Brazil's CPI for food jumped 8.8% on the year in August with rice, a household staple, surging more than 19%. A weaker currency has increased prices for many products, compounded by domestic supply chain disruptions caused by the pandemic.
The central bank began cutting interest rates in July 2019, and the policy rate sits at a record low of 2%. This figure is lower than the pace of inflation, essentially putting rates in negative territory. Prices are rising faster than the rate at which bank deposits earn interest, eroding the value of money. The bank opted against additional easing at its September meeting, seeing further cuts as difficult to sustain.
At least one country has raised rates in the middle of an economic slump, hoping to shore up its currency and rein in inflation. Turkey's central bank raised its policy rate by 2 percentage points to 10.25% on Sept. 24, its first hike in two years, to defend a lira languishing in record-low territory.
The country's CPI rose 11.77% on the year in August. In Istanbul, bread prices were raised last month for the first time in about two and a half years, in response to higher ingredient costs. The price of wheat reportedly climbed 85% over that period, while electricity costs surged more than 133%.
The main culprit is the weak lira, which has depreciated more than 20% against the dollar since the start of the year and recently set fresh lows for days on end.
The Turkish economy shrank 9.9% in the second quarter of 2020, and the tourism industry, normally a vital source of foreign currency, continues to struggle. Though Turkey likely would prefer to cut rates to bolster the economy, dealing with the lira is a higher priority for now, which leaves little choice but to move toward tighter monetary policy.