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Inflation round-up

While much of the developed world is in danger of falling into a high-inflation trap, according to the Bank for International Settlements, China is bucking the global trend. Its latest annual consumer price index movement was a modest 2.5% at end-June. While that reading was up from May's 2.1%, forecasts suggest Chinese inflation will remain contained.

The main reason behind lower Chinese price pressures is not exactly cheery: an economic slowdown, largely caused by widespread lockdowns because of Covid-19. There is also the fact that Beijing is leaning on pork producers and retailers to persuade them not to pass on rising costs to consumers - pork prices are a huge factor in the calculation of China's inflation rates.

Where China leads, much of Asia follows, and the country's outsized economic influence on the rest of the continent is evident in regional inflation forecasts. Average CPI inflation for 2022 is predicted by Consensus Economics to be only 3.2% in Asia-Pacific, compared to 6.9% in Western Europe, 7.8% in North America, 13.6% in Latin America (minus Venezuela) and an alarming 23.3% in Eastern Europe. It's not just Chinese influence, though; Asia is also suffering less from shortages of grains and sunflower products stemming from the war in Ukraine, because it consumes less of them than other parts of the world.

China's low inflation may now be helping the rest of the world too in its fight to bring down the cost of living. Weaker demand from China has already caused numerous commodity prices, such as for copper and oil, to fall back. Meanwhile, crop prices are also descending at last, so some food price relief is likely. The downside for producers is of course reduced export revenues, and that, alongside weak domestic demand because of high prices, means that worries about a global recession are overtaking those about soaring inflation. While it is possible to have both, at least for a while, there is no doubt that the most common cure for high inflation is an economic contraction. Whether the cure will be worse than the condition, only time will tell.

As far as expatriate staff from Asia are concerned, the comparatively low inflation in their home countries could mean they require high cost of living index adjustments in their host locations. The effect will in some cases be offset by relative home currency strength. However, while the Chinese yuan, Indian rupee, Indonesian rupiah, Malaysian ringgit and Singapore dollar have all gained recently against the euro, they have all lost ground against the US dollar, so it will depend on which host country is involved. The yen, however, has been very weak and outbound assignees from Japan could see very big index adjustments indeed, because Japanese inflation also remains relatively low. As always, ECA's next cost of living survey, to be compiled in September, will reveal all you need to know to protect your international assignees' purchasing power, in Asia, or anywhere else.

High-inflation countries (annual CPI 10%+)

Country CPI % Data month Trend IMF 2022 forecast %
Algeria 10.9 Apr-22 ▲ Rising 8.7
Angola 25.1 May-22 ▼ Falling 23.9
Argentina 60.7 May-22 ▲ Rising 51.7
Armenia 10.3 Jun-22 ▲ Rising 7.6
Azerbaijan 13.8 May-22 ▲ Rising 12.3
Belarus 17.4 Jun-22 ▲ Rising 12.6
Bosnia 15.2 May-22 ▲ Rising 6.5
Botswana 11.9 May-22 ▲ Rising 8.9
Brazil 11.9 Jun-22 ▲ Rising 13.7
Bulgaria 15.6 May-22 ▲ Rising 11.0
Burkina Faso 15.3 May-22 ▲ Rising 6.0
Burundi 18.6 May-22 ▲ Rising 9.2
Cayman Islands 11.1 Mar-22 ▲ Rising n/a
Chile 12.5 Jun-22 ▲ Rising 7.5
Costa Rica 10.1 Jun-22 ▲ Rising 5.4
Croatia 10.8 May-22 ▲ Rising 5.9
Cuba 23.7 Apr-22 ▲ Rising n/a
Czech Republic 17.2 Jun-22 ▲ Rising 9.0
Egypt 13.2 Jun-22 ▲ Rising 7.5
Estonia 21.9 Jun-22 ▲ Rising 11.9
Ethiopia 36.6 Apr-22 ► Steady 34.5
Gambia 11.6 May-22 ▲ Rising 8.0
Georgia 12.8 Jun-22 ▲ Rising 9.9
Ghana 27.6 May-22 ▲ Rising 16.3
Greece 12.1 Jun-22 ▲ Rising 4.5
Guinea 11.0 Apr-22 ► Steady 12.7
Haiti 27.8 May-22 ► Steady 25.5
Honduras 10.2 Jun-22 ▲ Rising 6.0
Hungary 11.7 Jun-22 ▲ Rising 10.3
Iran 52.5 Jun-22 ▲ Rising 32.3
Jamaica 10.9 May-22 ► Steady 8.5
Kazakhstan 14.0 May-22 ▲ Rising 8.5
Kosovo 14.1 Jun-22 ▲ Rising 9.5
Kyrgyzstan 14.0 May-22 ▲ Rising 13.2
Laos 12.8 May-22 ▲ Rising 6.2
Latvia 19.3 Jun-22 ▲ Rising 10.0
Lebanon 211.4 May-22 ► Steady n/a
Lithuania 18.9 May-22 ▲ Rising 13.3
Malawi 19.1 May-22 ▲ Rising 10.7
Mauritius 10.8 May-22 ► Steady 8.4
Moldova 32.1 Jun-22 ▲ Rising 21.9
Mongolia 15.2 May-22 ▲ Rising 15.5
Montenegro 11.7 May-22 ▲ Rising 6.8
Myanmar 12.6 Dec-21 ▲ Rising 14.1
Nicaragua 10.6 May-22 ▲ Rising 8.7
Nigeria 18.2 May-22 ► Steady 16.1
North Macedonia 14.5 Jun-22 ▲ Rising 6.9
Pakistan 13.8 May-22 ▲ Rising 11.2
Paraguay 11.5 Jun-22 ► Steady 9.4
Poland 13.9 May-22 ▲ Rising 8.9
Romania 15.1 Jun-22 ▲ Rising 9.3
Russia 15.9 Jun-22 ▼ Falling 21.3
Rwanda 12.6 May-22 ▲ Rising 8.0
Serbia 11.9 Jun-22 ▲ Rising 7.7
Sierra Leone 24.9 May-22 ▲ Rising 17.3
Slovakia 12.6 May-22 ▲ Rising 8.4
Slovenia 10.4 Jun-22 ▲ Rising 6.7
South Sudan 13.2 Dec-21 ▲ Rising 16.0
Spain 10.2 Jun-22 ▲ Rising 5.3
Sri Lanka 45.3 May-22 ▲ Rising 17.6
Sudan 192.2 May-22 ▼ Falling 245.1
Surinam 59.8 Apr-22 ► Steady 38.9
Turkey 78.6 Jun-22 ▲ Rising 60.5
Turkmenistan 12.5 Dec-21 ▲ Rising 17.5
Ukraine 18.0 May-22 ▲ Rising n/a
Uzbekistan 11.0 May-22 ► Steady 11.8
Venezuela 167.2 May-22 ▼ Falling 500.0
Zambia 10.2 May-22 ▼ Falling 15.7
Zimbabwe 131.7 May-22 ▲ Rising 86.7

Numerous countries joined our double-digit inflation table (above) this time. The vast majority of those on the list are emerging market economies, whose currencies are weakening against a persistently strong US dollar. With global commodities generally priced in dollars, costs for such purchasers are even higher than the nominal dollar price would suggest.

In other inflation news, the European Central Bank has warned that the impact of the war in Ukraine on agricultural commodities such as fertiliser, animal feed and sunflower oil could mean that food prices in the Eurozone keep rising at near-record rates for at least another year, despite a fall-back in prices recently and the region’s mostly self-sufficient agricultural sector.

Sri Lanka, whose citizens have finally forced their disastrous president to resign, will also be stuck with high inflation for some time to come, especially since it has been forced to hike VAT from 8% to 12% to try to rebuild government finances.

Finally, in more VAT news, Qatar still appears to be in no rush to implement VAT, even though it agreed to do this along with other Gulf Cooperation Council members way back in 2016. Its latest excuse is the current high inflation around the world, which is obviously less inconvenient for some than others!

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