India: A very early indicator of trends in other emerging countries

- "In India, inflation is now around 15% per year, while inflation remains very low in the great majority of emerging countries."
- "India's situation is due to excess demand (ex-ante) in the goods market, the shortfall in supply being due to bottlenecks occurring in the labour market."
- "India is characterised by the absence of migration from rural areas to the cities and by a high illiteracy rate, which limits the labour supply; in many emerging countries, on the contrary, there is an excess labour supply due to the existence of plentiful reserves of labour in rural areas: it is in this sense that India is a (very) early indicator of future trends in other emerging countries, which will occur when there are no longer any labour reserves."
- "Once inflation has appeared, it is self-sustaining: the central bank does not dare to increase interest rates sufficiently, because of the threat of massive capital inflows. As a result, real interest rates have become negative, thereby stimulating credit and demand."

Natixis Flash Economics 417 20100826

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