Inflation round-up

Bosnia, Burkina Faso, Egypt, Jamaica, Kazakhstan, Kosovo, Latvia, Mauritius, Paraguay, Poland, Romania, Russia and Slovakia have all joined our table of countries with official annual inflation above 10% since our last round-up in March. The diversity of size and development levels of the 13 economies involved is striking, and with the same being true of our watch-list later in the post, it is obvious that rampant inflation is a truly global problem currently.

We've examined the reasons for inflation being so widely felt in previous posts, but causing particular cost of living anxiety lately are food prices. The war in Ukraine and sanctions against Russia have robbed the world of two of its main food suppliers, but the resultant scarcity is only now beginning to kick in. Meanwhile drought is likely to reduce harvests in France and decimate them in east Africa, which faces a possible famine.

The International Monetary Fund raised the alarm in April about a potential inflationary spiral developing. This week, meanwhile, the Bank of England warned of "apocalyptic" food prices soon to arrive, saying that there was no way it could prevent inflation going above 10% in the United Kingdom this year. Many more countries will be in the same situation, which will be worsened by protectionist measures like export bans for foodstuffs, including palm oil in Indonesia and wheat in India. Even Asia, which has been less affected by inflation up to now, is catching up. 

There is no doubt that the combination of the Ukraine war, the persistence of the Covid-19 pandemic, slowing Chinese growth, rising interest rates and the devastating effects of climate heating could cause a very serious economic crisis across the globe, which would be felt particularly acutely in low- and middle-income countries.

Employers everywhere must think very carefully about how they respond to the soaring cost of living. Even before inflation began to increase so dramatically, the numbers of people leaving jobs in the developed world during the last two years had never been so high. While concerns about a possible wage-price spiral are genuine, it is also vital to find a fair balance between rising business costs and helping employees navigate obvious potential hardships. Indeed, being seen to 'share the hit' may be essential, or discontent and demotivation will only worsen. As always, such calculations may be even more complicated for those managing staff abroad.

For most of the last decade, around 40 different countries on average could be relied upon to report falling prices (deflation); now there is only one - the Solomon Islands, which recorded -2.8% annual inflation to end-February 2022. A further 40 countries would generally report low inflation of between 0% and 1%; now there are only three - Bolivia, Greenland and Vanuatu. None of these are common expatriating countries nor recipients of big numbers of international assignees, but cost of living comparisons between home and host locations for assignments involving these places could be very stark. ECA's March 2022 Cost of Living Survey is being published this month and will reveal all! Deflation will of course return one day, but with the current surge in cost of living predicted to last two or three years, for now it is almost a thing of the past.

In other inflation news, Kuwait looks like it may abandon its planned 2023 VAT launch.

Finally, here's the watch-list: