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Inflation round-up

There are now clear signs of inflation rising in many parts of the world. The combination of higher oil and other commodity prices (such as for iron ore and copper), increased government spending, and rebounding demand for goods and services whose supply remains restricted by coronavirus effects, is having an impact that is beginning to show up in official consumer-price indices. 

Debate rages about the likely effects on economies. A strong case is being made for inflation becoming a serious constraint to the world's recovery, especially if interest rates need to rise sharply to contain it. Happily, a more positive case is also being put forward, which says that any significant rise in inflation will be limited and temporary.

For what it's worth, I find the positive argument more compelling, but even if forecasts of greater trouble ahead turn out to be right, global mobility (GM) teams can probably rest reasonably easy. One reason for this is that the effects of rising inflation in the current scenario will be broad-based, affecting many countries in similar ways and to similar degrees. Cost-of-living calculations for international assignees are always relative, based on a comparison of conditions in both home and host locations. So, even if there is a big jump in inflation in the expatriate's host country, it could well be offset by a similar rise in their home country.

Furthermore, in the rich world in recent decades at least, official inflation rates rarely go very high, so even where there are discrepancies between, say, oil-producing countries and oil-consuming ones, they are unlikely to be big. 

Where GM teams might perceive a little more difficulty is with emerging markets. The developing world is experiencing the same combination of global price pressures mentioned above, but another factor - food prices - is also on the rise, and its effects on official inflation indices are always much more potent in poorer countries, for the simple reason that the poorer you are, the greater the proportion of income you are likely to spend on food.

Covid-19 has seriously hindered food supply chains everywhere, as have harmful extreme-weather episodes (global heating is increasingly damaging harvests). The Food & Agriculture Organisation's Food Price Index rose in February for the ninth month in a row, reaching its highest level since 2014. There are also numerous concerns about higher food costs in specific countries; here are just a few:

  • Lebanon has cut bread and other subsidies four times in 12 months as its long crisis deepens.
  • Brazil has seen the biggest food price increase anywhere, compared to a year before.
  • In China, swine fever has returned and pork prices (high-weighting in China) are soaring again.
  • Food prices are up alarmingly in Nigeria due partly to coronavirus limitations, but also much-criticised border closures, which have created supply problems, and attacks on farmers.
  • Protests and strikes by farmers in India, who are unhappy with agriculture reforms, have sent food prices higher, despite increased food subsidies.

Some emerging markets already have very high official annual inflation, as our first table below shows, and others could join them if pressure on food prices doesn't ease soon. The effects could be self-perpetuating if they bring people out onto the streets again. Before Covid-19 arrived and sent protestors home, social unrest had been a widespread phenomenon, lasting for months in several countries, and was largely caused by cost-of-living worries. Protests themselves, however, can be destabilising and further restrict production and supply chains, so putting more upward pressure on prices. GM staff can probably expect expats in affected countries to report discomforting headlines about soaring prices and fears about security.

Food prices are also rising in the developed world (food price inflation was 3% in the United States in 2020; double the rate of inflation generally), but official inflation calculations apply a much lower weighting to the food category, because richer people (including international assignees, of course) spend a smaller proportion of income on it. For instance, the average Nigerian spends half their income on food, whereas even the poorest Americans only spend about a third of theirs on it.

Assumptions are based on average consumption patterns published by national statistics offices, which ECA International also uses as the foundation for its cost-of-living calculations for expatriate staff. We apply the appropriate weightings to our own bespoke 'basket' of items, designed to reflect expatriate shopping habits rather than those of local nationals. GM teams can rest assured, therefore, that ECA's suggested cost-of-living adjustments, used consistently, will always reflect likely actual impacts on assignee spending power. In most cases, these will be much less pressing than the alarming perceptions often derived, not just from media headlines, but from official inflation readings too.

High-inflation countries (annual CPI 10%+)
Country CPI % Data month Trend IMF 2021 forecast %
Angola 25.3 Jan-21 ▲ Rising 20.6
Argentina 38.5 Jan-21 ▲ Rising n/a
D R Congo 20.5 Dec-20 ► Steady 12.1
Ethiopia 20.6 Feb-21 ► Steady 11.5
Guinea 12.6 Jan-21 ▲ Rising 8.0
Haiti 18.7 Jan-21 ▼ Falling 23.8
Iran 48.2 Feb-21 ▲ Rising 30.0
Kyrgyzstan 10.1 Jan-21 ▲ Rising 5.5
Lebanon 145.8 Dec-20 ▲ Rising n/a
Liberia 10.4 Nov-20 ▼ Falling 9.5
Nigeria 17.0 Jan-21 ▲ Rising 12.7
Sierra Leone 11.5 Jan-21 ▲ Rising 15.5
South Sudan 46.8 Jan-21 ▼ Falling 33.1
Sudan 304.3 Jan-21 ▲ Rising 129.7
Surinam 60.7 Jan-21 ▲ Rising 51.0
Syria 133.7 Jul-20 ▲ Rising n/a
Turkey 15.6 Feb-21 ▲ Rising 11.9
Turkmenistan 10.0 Dec-20 ▼ Falling 6.0
Uzbekistan 11.1 Dec-20 ▼ Falling 10.7
Venezuela 2665.4 Jan-21 ▼ Falling 6500.0
Zambia 22.2 Feb-21 ▲ Rising 13.3
Zimbabwe 321.6 Feb-21 ▼ Falling 3.7

Kyrgyzstan was the only newcomer to the table above this time, having been on our watch list (table below) recently. Higher food prices have been the driving factor behind rising inflation in the country.

Syria reported annual inflation for the first time in many months, albeit for the 12-month period ending in July 2020, so the information is already out of date. The jump from 34.5% the last time it was reported in December 2019 to a latest reading of 133.7% reflects the depth of the economic collapse the war-torn country has experienced and the shortages of goods and services its people have to live with.

Elsewhere, Oman will introduce a sales tax (VAT) at 5% on 16 April 2021, to bring it in line with other Gulf states. Kuwait will also introduce VAT at 5% on 1 April 2021.

Finally, here is our watch list:

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

Country Latest CPI % Data month Up from
Belarus 8.7 Feb-21 7.5% Dec-20
Dominican Rep 6.2 Jan-21 5.0% Oct-20
Gambia 7.6 Jan-21 5.7% Dec-20
Pakistan 8.7 Feb-21 5.7% Jan-21
Seychelles 7.4 Jan-21 3.8% Dec-20
Ukraine 7.5 Feb-21 5.0% Dec-20


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