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Inflation round-up

Our regular tables grow ever longer as the cost of living continues to surge around the world. Recent headline inflation readings included the United States' at a 40-year high; average rich country inflation at its highest for 25 years; highest German and British rates in 30 years; world food prices hitting a ten-year high; and even Japan finally getting some inflation. However, there have also been tentative signs that the worst might be over, not least that central banks are starting to take action to stem inflation. Furthermore, in the US at least, while the annual figure hit a new high, the month-on-month rate declined for the second month in a row and both import and export prices fell in December. Monthly figures are better indicators of current trends. Energy prices are now falling outright, while rich-country food inflation is also slowing. Global supply-chain problems also appear to be easing. Meanwhile, average Asian inflation was significantly lower than readings in all other regions in 2021 and that is forecast to continue through 2022. Wages could be the deciding factor, however, and in most places they continue to rise notably.

There were no fewer than five newcomers to our high-inflation table this time: Azerbaijan, Moldova, Mongolia, Pakistan and, perhaps most alarmingly, Sri Lanka, whose economy has been described as a "ticking time bomb". The government has borrowed excessively from the central bank (essentially printing money) to cover falling tax revenues as tourism and remittances have suffered during the pandemic. The bank, meanwhile, has eaten through foreign-exchange reserves at an unsustainable rate trying to support the value of the rupee - creating an overvalued currency and excessively-low interest rates. To save hard-currency reserves, a ban on numerous imports was introduced, but it soon created shortages, especially of food items, sending prices up. High public-sector salaries may no longer be affordable. Inflation hit 12.1% in December (see table below), but would be worse if the government hadn't cut VAT from 15% to 8% in an attempt to reduce it. Help from the IMF is being sought, but conditions attached would mean unpopular - and probably severe - spending cuts. Some analysts are predicting 40%+ inflation in the next few years, so Sri Lanka is definitely one to watch. 

High-inflation countries (annual CPI 10%+)

Country CPI % Data month Trend IMF 2022 forecast %
Angola 30.4 Nov-21 ▲ Rising 14.9
Argentina 51.2 Nov-21 ► Steady n/a
Azerbaijan 11.2 Nov-21 ▲ Rising 3.2
Belarus 10.3 Nov-21 ► Steady 8.2
Brazil 10.7 Nov-21 ▲ Rising 5.3
Ethiopia 33.0 Nov-21 ► Steady n/a
Georgia 13.9 Dec-21 ▲ Rising 5.4
Ghana 12.3 Nov-21 ▲ Rising 8.8
Guinea 12.7 Oct-21 ▼ Falling 9.9
Haiti 24.6 Nov-21 ▲ Rising 15.5
Iran 35.6 Nov-21 ▼ Falling 27.5
Kyrgyzstan 12.3 Nov-21 ▼ Falling 7.8
Lebanon 201.1 Nov-21 ▲ Rising n/a
Moldova 12.4 Nov-21 ▲ Rising 5.8
Mongolia 10.5 Nov-21 ▲ Rising 7.3
Nigeria 15.9 Nov-21 ▼ Falling 13.3
Pakistan 12.3 Dec-21 ▲ Rising 8.5
Sierra Leone 14.6 Oct-21 ▲ Rising 13.3
Sri Lanka 12.1 Dec-21 ▲ Rising 6.3
Sudan 350.8 Oct-21 ▼ Falling 41.8
Surinam 60.6 Nov-21 ▲ Rising 31.7
Turkey 36.1 Dec-21 ▲ Rising 15.4
Ukraine 10.3 Nov-21 ▼ Falling 7.1
Uzbekistan 10.3 Nov-21 ► Steady 10.9
Venezuela 686.4 Dec-21 ▼ Falling 2000.0
Zambia 19.3 Nov-21 ▼ Falling 19.2
Zimbabwe 60.7 Dec-21 ▲ Rising 30.7

Although Venezuela still has the world's highest inflation, at 686.4%, this actually marks a big improvement in recent months. Its annual rate has been above 1000% since 2017 and peaked in the millions in 2018. The reduction since has been mainly due to the government cutting spending and therefore printing less money to pay for it. Less positively, it also reflects very low domestic demand in the battered economy, which has been shrinking since 2014. Furthermore, it is possible the downward trend could reverse because the authorities are again using foreign-exchange reserves to artificially support the value of the bolivar and they are becoming rapidly depleted, meaning another currency devaluation may be needed. In the meantime, let's celebrate the fact that Venezuela has finally exited hyperinflation conditions for the first time in five years.

Three pieces of VAT news now: firstly, a reminder that Bahrain doubled its sales tax (VAT) rate from 5% to 10% on 1 January 2022. This will mean an instant rise in inflation but also a sizeable reduction when the change falls out of calculations in 12 months' time. Also on 1 January, Laos cut its standard rate of VAT from 10% to 7%. Lastly, in January 2023 Aruba will introduce VAT at 12.5%. However, this sales tax largely replaces others, so shouldn't have an enormous impact on inflation or cost of living indices.

Finally, here is our usual inflation watch-list, unusually long!

On watch! (notable rise in inflation, but below 10%)

Country Latest CPI % Data month Up from
Algeria 9.5 Nov-21 4.1% Jun-21
Barbados 5.6 Sep-21 3.2% Aug-21
Belgium 5.6 Nov-21 4.2% Oct-21
Belize 5.7 Nov-21 3.9% Aug-21
Benin 5.1 Dec-21 2.6% Nov-21
Bosnia 5.3 Nov-21 3.1% Sep-21
Bulgaria 7.3 Nov-21 6.0% Oct-21
Burkina Faso 5.9 Nov-21 4.4% Sep-21
Cayman Islands 6.4 Sep-21 0.2% Mar-21
Chile 6.7 Nov-21 5.3% Sep-21
Colombia 5.6 Dec-21 4.6% Oct-21
Czech Republic 6.0 Nov-21 4.9% Sep-21
East Timor 5.3 Nov-21 4.1% Sep-21
El Salvador 6.2 Nov-21 5.0% Sep-21
Estonia 8.8 Nov-21 7.0% Oct-21
Germany 5.2 Nov-21 4.1% Sep-21
Hungary 7.4 Nov-21 5.5% Sep-21
Iraq 8.4 Nov-21 6.8% Oct-21
Irish Republic 5.4 Nov-21 3.7% Sep-21
Kosovo 6.9 Nov-21 5.7% Oct-21
Latvia 7.4 Nov-21 6.1% Oct-21
Lithuania 9.2 Nov-21 8.0% Oct-21
Mali 5.9 Nov-21 4.7% Sep-21
Mauritius 6.4 Nov-21 5.4% Oct-21
Netherlands 5.2 Nov-21 3.4% Oct-21
Nicaragua 6.4 Oct-21 4.1% Jul-21
Norway 5.1 Nov-21 3.5% Oct-21
Paraguay 7.6 Oct-21 5.6% Aug-21
Poland 7.8 Nov-21 6.8% Oct-21
Qatar 6.1 Nov-21 2.7% Sep-21
Romania 7.8 Nov-21 6.3% Sep-21
Russia 8.4 Dec-21 7.4% Sep-21
Serbia 7.5 Nov-21 5.7% Sep-21
Slovakia 5.6 Nov-21 4.6% Sep-21
Spain 5.5 Nov-21 4.0% Sep-21
United Kingdom 5.1 Nov-21 3.1% Sep-21
United States 7.0 Dec-21 5.4% Sep-21
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