• A softening in inflation momentum is visible in May data and it appears to be driven by food prices • As global food inflation slowed sharply in April-May, there could be further slowing in headline inflation momentum near-term • We estimate positive output gaps in Pakistan, Georgia, Egypt and Uruguay, forcing these central banks to tighten more than others Inflation remains a concern at the global level, particularly because of its impact on growth. That said, in most Edge countries the latest data show that food is helping to slow rather than accentuate what remains quite high inflation. Data for May shows a slowing in momentum (Figure 1, blue bars), even though over-year-ago growth rates continue to increase almost across the board (orange bars in Figure 1). However, there are some exceptions to this trend and they are concentrated in Latam Edge space: Costa Rica, Ecuador but also Sri Lanka in Asia Edge. Sri Lanka is a special case given the severe crisis underway which has sharply weakened the currency.

The stronger momentum in Costa Rica is driven by significant FX weakening.

Ecuador is dollarized and has relatively low inflation, but food prices recorded a large —and lagged—increase in May explaining the stronger momentum.