Washington, Mar 9: Targeting inflation in developing countries would be possible only after increased market orientation and higher degree of coordination between monetary and fiscal authorities, according to IMF officials."In most developing countries, there is no consensus about the optimum inflation rate, which is one of the bases for setting the medium-term inflation target, though there is a general perception that it should be higher than in industrial countries," officials in IMF's research department said. "There is also no agreement on the speed with which the medium-term inflation target should be attained in these economies. Some observers have argued that once a developing country has brought down inflation to within the low-to-moderate range, it should adopt a cautious approach to further disinflation," they said.
In many developing countries, administered or controlled prices are an important component of aggregate price indices and, thus, of the short-run behaviour ofinflation.
Therefore, a proper inflation forecast would need to take account of the timing and extent of changes in those prices which requires a higher degree of coordination between monetary and fiscal authorities as in industrial countries where most prices are market-determined.
