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Inflation round-up

Reuters was just one of many news sources recently to run an attention-grabbing headline about China's consumer price inflation hitting an eight-year high in November. Unlike some, however, Reuters also balanced the story with details of a different inflation measure, China's factory-gate prices, stagnating in deflationary territory.

The two contrasting bits of data, with CPI hitting 4.5% but PPI (producer price inflation) at -1.4%, reflect China's recent economic story. It has successfully shifted the main driver of activity towards household consumption and domestic demand, whose buoyancy (alongside soaring food prices) is lifting the CPI, and away from the previously dominant manufacturing-for-export sector, whose weakness (partly because of the US-China trade war) has caused the PPI to slump. But the data also shows the value of knowing your inflation measures and being aware of what they are designed to reveal, because trusting in just one of these two inflation stories (or a single headline) could be seriously misleading. Indeed, the conflict between the two datasets has created a major policy headache for the People's Bank of China, as the Reuters piece explains. Global mobility teams would be equally perplexed trying to fairly calculate remuneration for their charges in China based on either of these figures.

ECA's cost-of-living (CoL) indices are extremely focused, with our own team of intrepid International Data Researchers recording prices for items that expatriate staff actually buy in outlets where they actually buy them from. The indices are city focused too, whereas headline public inflation data uses too broad a brush for global mobility purposes, by calculating prices nationwide and without differentiating spending patterns between different groups of people. Alongside all the other vital information we have on China, ECA provides CoL indices for international assignees living and working in no fewer than 23 separate cities in the country, so you know who to come to if you need assistance with managing your expatriates there. Please do get in touch.

Malawi and Turkey rejoined our table of high-inflation countries this time, while Myanmar dropped away as its CPI fell below 10%:

High-inflation countries (CPI 10%+)
Country CPI % Last reported Trend IMF 2020 forecast %
Angola 17.5 Dec-19 ► Stable 15.0
Argentina 52.9 Dec-19 ► Stable 51.0
Ethiopia 19.5 Dec-19 ▲ Rising 12.7
Haiti 19.5 Aug-19 ► Stable 17.1
Iran 27.8 Nov-19 ▼ Falling 31.0
Liberia 30.9 Sep-19 ▲ Rising 20.5
Malawi 10.4 Nov-19 ▲ Rising 8.4
Nigeria 12.5 Nov-19 ▲ Rising 11.7
Pakistan 12.4 Dec-19 ▲ Rising 13.0
Sierra Leone 13.1 Nov-19 ▼ Falling 13.0
South Sudan 170.5 Oct-19 ▲ Rising 16.9
Sudan 57.7 Oct-19 ▲ Rising 62.1
Turkey 11.8 Dec-19 ▲ Rising 12.6
Venezuela 39 113.8 Sep-19 ▼ Falling 500 000.0
Zambia 11.7 Dec-19 ▲ Rising 10.0
Zimbabwe 521.1 Dec-19 ▲ Rising 49.7

In other inflation news, Qatar and Oman, which had both planned to introduce VAT at 5% along with other Gulf states in 2018, are not now expected to do so until 2021 at the earliest.

Talking of misleading headlines, many media around the world were quick to warn of World War III being launched after the United States assassinated Iranian military commander Qassem Soleimani. Needless to say, this was greatly overblown and although oil prices did rise alarmingly, this was only temporary as everyone soon calmed down again.

As the table above shows, Zimbabwe's annual inflation is now over 500%. More positively, there are signs that its rapid rise could be beginning to slow.

Argentina's central bank is shifting its approach to reducing inflation. High interest rates (textbook policy) have noticeably failed to stem price rises, despite being in place for several years now. Instead, the bank wants to cut interest rates to stimulate economic growth (definitely not a textbook method of bringing down inflation) and rely on a new "social pact" with businesses and unions, the hope being that they will promise not to raise prices or wage demands so much. The government has already introduced numerous price controls, just in case businesses fail to stay faithful. The trouble is, if businesses can't raise prices enough to cover their costs they will go bankrupt, and the central bank's efforts to stimulate the economy could all be in vain.

Finally, here is our usual inflation watch list:

On watch! (notable rise in inflation, but below 10%)
Country Latest CPI % Data month Up from
Barbados 5.5 Aug-19 3.2% Jun-19
Egypt 7.1 Dec-19 3.6% Nov-19
Kenya 5.8 Dec-19 3.8% Sep-19
Laos 6.3 Dec-19 3.9% Sep-19
Georgia 7.0 Dec-19 4.9% Aug-19
Moldova 7.5 Dec-19 6.3% Sep-19
Rwanda 6.7 Dec-19 4.4% Oct-19
Uruguay 8.8 Dec-19 7.8% Sep-19
Vietnam 5.1 Dec-19 3.5% Nov-19
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