The Impact of Global Inflation on the Economies of Developing Countries

The impact of global inflation on the economies of developing countries is very significant and complex. Rising inflation in various parts of the world, especially in developed countries, has a chain impact that can affect developing countries. One of the most direct impacts is the increase in prices of goods and services. Developing countries often rely heavily on imports, especially for raw materials and consumer goods. When global inflation rises, the prices of these goods also rise. This causes people’s costs of living to increase, causing pressure on purchasing power. People who previously could buy basic necessities now have to dig deeper into their pockets, which has led to stagnation in domestic consumption. Furthermore, the impact of global inflation also drives interest rates to increase. Developed countries often respond to inflation by raising their benchmark interest rates. This causes capital flows from developing countries to reverse, where investors prefer to invest in markets that provide higher returns. As a result, developing countries can experience liquidity crises and weakening exchange rates, increasing the burden of external debt which is often tied to foreign currencies. Developing countries that still have fragile economic structures and high dependence on commodities are also at high risk. When inflation slows economic growth in developed countries, a decline in demand for key commodities such as oil and agricultural products can affect the country’s income. This results in fiscal deficits, where governments have to find ways to close funding gaps, often by cutting important public spending, such as education and health. From an investment perspective, high global inflation can attract investors’ attention to re-evaluate their portfolios. When certain sectors in developing countries become less attractive due to inflation risks and currency volatility, investors may be more reluctant to make long-term investments. This could slow long-term economic growth and worsen the unemployment problem. Infrastructure and the informal sector are also affected. Inflation can hamper infrastructure development which is important to support economic growth. Many infrastructure projects require stable funding; if inflation creates uncertainty, investment in infrastructure may be hampered. Meanwhile, the informal sector, which makes up a large part of developing countries’ economies, will be increasingly vulnerable to rising costs of living, which could drive more small businesses out of business. In an increasingly connected world, global supply chain disruptions resulting from trade freezes due to inflation are also affecting developing countries. Price volatility can lead to difficulties in procuring goods and services, where developing countries may be forced to pay higher prices to meet their local needs. Coupled with geopolitical risks, the impact of global inflation creates uncertainty that disrupts the economic stability of developing countries. Stakeholders must respond with policies that enable adaptation to these changes, including economic diversification, increasing food security, and strengthening social protection systems to address the impact of inflation on society.