Despite the spread of the Omicron variant, global inflation is likely to remain high in 2022 for many reasons, including persistent shipping snags, high natural gas prices, lower food production, and currency pressures. B2C firms should evaluate how rising prices will affect demand for their products across markets. In high-risk markets, firms may consider altering product offerings and re-evaluating their pass-through strategy. Across the global portfolio, firms should reconsider their targets and resource allocation decisions, as some markets face the risk of falling consumer demand.
High and rising global inflation is forcing a re-evaluation of inflation expectations for next year. The Organization for Economic Cooperation and Development (OECD) recently warned of longer-lasting global inflation and the risk that households and businesses will become accustomed to rising prices. FrontierView has likewise posted upward revisions to our 2022 consumer inflation forecasts for a variety of markets, particularly in Latin America, Western developed markets, Central and Eastern Europe, as well as in parts of the Middle East and Sub-Saharan Africa. On average across markets, our inflation forecasts for 2022 for have risen by 1 percentage point in the last year. Although we expect inflation to peak in late 2021 and gradually ease next year, higher-for-longer inflation poses the risk of consumer demand destruction and consumer behavior shifts.
Rising inflation threatens the consumption outlook worldwide, but risk varies across markets. FrontierView has therefore developed a rating system to evaluate which countries are most likely to see declines in discretionary consumer spending in 2022, as well as trading down to mitigate price increases. Our ratings assume consumer demand destruction will be highest where inflation has been accelerating the fastest, and where consumers spend a high share of their incomes on essentials such as food and energy—categories seeing some of the sharpest price increases. Putting those factors together, consumer demand destruction risk is highest in Sub-Saharan Africa, where consumers are most vulnerable to energy and especially food inflation. South Asia and parts of MENA and CEE are also at considerable risk of consumer spending declines as prices rise. In Latin America, risk varies across countries, in part due to differing policies around energy subsidies. Risk is lowest in northeast Asia, where inflation has so far been subdued, and in the US, where consumers are relatively less vulnerable to high inflation.
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