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Inflation round-up

The Seychelles was the only newcomer to our high-inflation table this time, as its year-on-year consumer price index change rose to double figures in June, reaching 11.2%. Rising price pressures have been caused by greater food and energy import costs and a growing money supply after IMF recovery funding was secured. When it comes to calculating cost of living for international assignees, however, the exchange-rate factor also needs to be taken into account; taken together, currently they put the Seychelles in a rare position.

Virtually all the other countries in the table (see below) have depreciating currency trends to offset their high inflation, and the vast majority of the time inflation and exchange rate trends do offset each other to at least some degree when it comes to expatriate remuneration; but currently this is not the case with the Seychelles.

In the last six months the Seychelles rupee has gained 33% against the euro. Such a gain, allied to high inflation, could produce a sharp increase in the necessary cost of living adjustment (COLA) that ECA's system would recommend in order to maintain the same standard of living, through purchasing power, for expat staff working in the Seychelles. Indeed, if these trends are maintained, that will almost certainly happen with our September 2021 survey. Increases of such magnitude can represent significant extra costs for employers, but a bigger problem might arise later, if the next cost of living survey in six or 12 months' time sees corrections in both the inflation and exchange-rate factors and produces a substantially negative COLA suggestion. 

Such a scenario is entirely possible, especially given that the recent upward trend in the rupee is itself a market correction after heavy falls in 2020 - indeed, over the last 12 months the rupee is up by only 17%, showing how big its depreciation was earlier in the period; during the last 24 months, the rupee has actually fallen by 15%; it has even fallen 8% in just the last three days! So, a great deal depends upon when your pay review falls and how long a period you take into account. Reacting precipitously to the last six months' changes, without also considering the previous six, would be to adjust pay according to a very distorted view of how cost of living has developed.

While there's no doubt employers can face serious challenges when implementing negative indices, the sheer volatility in the rupee's value, caused by big and often rapid swings in sentiment about debt, tourism, Covid-19, aid and political factors lately, proves once again that the best policy for global mobility teams is nearly always to consistently and persistently apply ECA's COLAs, both positive and negative, over time. Doing so may produce one-off cost shocks or require explanations for expats as to why their nominal pay has gone down, but it is often the only way to ensure that their standard of living is protected throughout the assignment.

If you need assistance with your assignments in the Seychelles, or anywhere else, do please get in touch

High-inflation countries (annual CPI 10%+)
Country CPI % Data month Trend IMF 2021 forecast %
Angola 26.3 Jun-21 ► Steady 22.3
Argentina 48.8 May-21 ▲ Rising n/a
D R Congo 20.4 Jan-21 ► Steady 10.9
Ethiopia 24.5 Jun-21 ▲ Rising 13.1
Guinea 12.4 Apr-21 ► Steady 8.0
Haiti 17.2 Mar-21 ▼ Falling 20.5
Iran 47.6 Jun-21 ► Steady 39.0
Kyrgyzstan 10.9 May-21 ▲ Rising 8.6
Lebanon 119.8 May-21 ▼ Falling n/a
Nigeria 18.5 May-21 ► Steady 16.0
Seychelles 11.2 Jun-21 ▲ Rising 3.7
South Sudan 18.3 Feb-21 ▼ Falling 40.0
Sudan 379.0 May-21 ▲ Rising 197.1
Surinam 44.4 May-21 ▼ Falling 52.1
Syria 139.5 Aug-20 ▲ Rising n/a
Turkey 17.5 Jun-21 ▲ Rising 13.6
Turkmenistan 10.0 Dec-20 ▼ Falling 8.0
Uzbekistan 10.9 May-21 ▼ Falling 5.0
Venezuela 2719.5 May-21 ▼ Falling 5500.0
Zambia 24.6 Jun-21 ▲ Rising 17.8
Zimbabwe 106.6 Jun-21 ▼ Falling 99.3

While most inflation indicators globally continue to point upwards, most analysts - including this one - maintain that the trend will be temporary (not least because central banks appear to have the tools to control price pressures). Nevertheless, when you see such an influential economy as the United States' witnessing such a sharp rise in inflation (see next table), and then China chips in too, caution is advisable. For global mobility teams, who may be used to seeing the majority of assignee sending countries (generally in the developed world, though this is changing) having low inflation, the increases in rich-country prices we are currently seeing could in many cases level out the inflation factor in cost of living comparisons with emerging markets, leaving exchange rate changes as the dominant force. As always, ECA will monitor every pairing and calculate fair COLAs to reflect developments as they apply to expatriate purchasing power, so you don't have to!

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

Country Latest CPI % Data month Up from
Botswana 6.2 May-21 3.1% Mar-21
Brazil 8.3 Jun-21 6.1% Mar-21
Dominican Rep 9.3 Jun-21 8.3% Mar-21
Georgia 9.9 Jun-21 7.7% May-21
Hungary 5.3 Jun-21 3.7% Mar-21
Iraq 5.6 May-21 4.3% Mar-21
Jamaica 5.0 May-21 3.8% Feb-21
Lesotho 6.9 May-21 5.6% Feb-21
Mexico 5.9 Jun-21 4.7% Mar-21
Mongolia 6.2 May-21 2.5% Mar-21
South Africa 5.2 May-21 3.2% Mar-21
Sri Lanka 6.1 May-21 5.1% Mar-21
Togo 6.2 Jun-21 3.7% May-21
Ukraine 9.5 May-21 8.4% Apr-21
United States 5.0 May-21 2.6% Mar-21

Finally, Cuba witnessed its worst social unrest for at least 30 years last week and a big issue for protestors seemed to be inflation. The authorities only report official inflation once a year, with the latest having been 4.2% at the end of 2020. However, reports suggest that there are extreme shortages of many goods and services, because the loss of tourist revenues due to Covid-19 has meant many imports are unaffordable - and Cuba doesn't produce much stuff of its own. Some analysts suggest the real annual inflation figure should be as high as 500%! However, you can always rely on ECA to keep things real and, fortunately, we have carried out an interim COL survey for Cuba, which suggests that prices relevant to expatriate spending patterns increased by only 3% in the six months to June. The government there is pretty efficient at implementing price controls - which is a major reason behind the lack of domestic production, of course.

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