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Inflation round-up

Inflation jumped significantly in April in both the United States and the United Kingdom, two of the biggest sending and receiving countries of international assignees. The consumer price index rose from 2.6% in March to 4.2% in April in the US and more than doubled in the UK from 0.7% to 1.5%. But before global mobility teams rush to review expatriates' pay, there are a few things to consider first which should ease the pressure. 

Firstly, while the increases in inflation sound big in percentage terms they are partly the result of very low inflation in both countries a year previously. Base effects are obviously vital in the calculation of inflation but are often forgotten by people reading alarming headlines. In addition, the new nominal rates are still quite low (very low in the UK's case). Furthermore, for many assignees, the new rates simply bring home inflation more into line with host inflation. Many destination countries (especially emerging markets) have higher inflation generally than developed countries like the US and UK and don't forget that with global mobility it is the comparison between home and host circumstances that matters.

Meanwhile, the rises in inflation might not last very long. Debate continues to rage about the potential for permanently higher inflation, not only in these countries but around the world, based on the huge amounts of stimulus money governments have been pumping into economies to help them recover from the coronavirus pandemic. Certainly, domestic demand growth in many countries already seems potent and is streaking ahead of supply capabilities, which are still hamstrung by Covid-19 containment measures. However, supply is likely to catch up reasonably quickly, while state stimulus can be cut if inflation does take off alarmingly, and central banks can reduce spending and price pressures by raising interest rates. 

In the US, President Biden has received criticism of his three big spending programmes mainly because of their potential to be inflationary. However, closer examination shows that almost every measure contained in the American Recovery, Jobs and Family packages has productivity growth as a core aim. Indeed, boosting productivity is arguably the overriding principle and is something that would, if successful, reduce inflation in the longer term, not inflame it.

A prolonged period of elevated inflation in the developed world seems improbable without wages spiralling to much higher levels, and that will only happen if and when unemployment falls to lower ones. In the US in April, joblessness actually increased. It fell a notch in the UK in March and data will probably show that trend having continued in April. As yet, the requirement for a wage-price spiral seems a long way off, especially in the US, although the UK's new post-Brexit points-based immigration system means that it has more scope for pay inflation because it has made it almost impossible for companies to employ foreign truck drivers, hospitality staff, farm workers and others (who are apparently too unskilled to be worth having!) and the number of British residents wanting to do these jobs so far falls well short of needs. Wages might have to rise considerably to attract enough staff and the higher costs will to at least some degree be passed on to consumers.

Lastly, there have been lots of headlines recently about a developing commodity-price 'supercycle'. Panic-buying of fuel following the hacking of a major pipeline didn't help, and iron ore, copper and lumber prices, among others, have shot considerably higher in recent months, pushing 'factory-gate' producer prices rapidly upwards in China and elsewhere. However, simple mathematics shows that commodity prices would have to soar much higher for much longer to create a real consumer-price inflation alarm, and with lumber and steel prices, for instance, having fallen back again significantly this week, other commodities might follow.

Even if there is a serious increase in official inflation rates around the world, always remember that national rates do not efficiently reflect changes in expatriate cost of living, which we calculate independently at ECA, based on assignee lifestyles rather than those of local nationals. As always, we will continue to monitor all relevant factors so that you can, through persistent application over time of our suggested adjustments, ensure your international assignees' purchasing power is protected.

High-inflation countries (annual CPI 10%+)
Country CPI % Data month Trend IMF 2021 forecast %
Angola 27.3 Mar-21 ▲ Rising 22.3
Argentina 42.6 Mar-21 ▲ Rising n/a
D R Congo 20.4 Jan-21 ► Steady 10.9
Ethiopia 19.2 Apr-21 ▼ Falling 13.1
Ghana 10.4 Mar-21 ▲ Rising 9.0
Guinea 12.3 Mar-21 ► Steady 8.0
Haiti 17.9 Feb-21 ▼ Falling 20.5
Iran 49.5 Apr-21 ▲ Rising 39.0
Kyrgyzstan 10.2 Mar-21 ▲ Rising 8.6
Lebanon 157.9 Mar-21 ▲ Rising n/a
Liberia 12.9 Jan-21 ▲ Rising 10.9
Nigeria 18.8 Mar-21 ▲ Rising 16.0
South Sudan 18.3 Feb-21 ▼ Falling 40.0
Sudan 341.0 Mar-21 ▲ Rising 197.1
Surinam 61.9 Mar-21 ▲ Rising 52.1
Syria 133.7 Jul-20 ▲ Rising n/a
Tajikistan 10.1 Mar-21 ▲ Rising 8.0
Turkey 17.1 Apr-21 ▲ Rising 13.6
Turkmenistan 10.0 Dec-20 ▼ Falling 8.0
Uzbekistan 10.9 Mar-21 ▼ Falling 5.0
Venezuela 3012.2 Mar-21 ▲ Rising 5500.0
Zambia 22.7 Apr-21 ▲ Rising 17.8
Zimbabwe 240.6 Mar-21 ▼ Falling 99.3

Finally, here is our regular inflation watch list:

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

Country Latest CPI % Data month Up from
Armenia 5.8 Mar-21 4.5% Jan-21
Belarus 8.5 Mar-21 7.5% Dec-20
Brazil 6.1 Mar-21 4.6% Jan-21
Burundi 7.8 Mar-21 6.1% Feb-21
Dominican Rep 8.3 Mar-21 7.1% Feb-21
Gambia 7.4 Mar-21 6.4% Feb-21
Georgia 7.2 Mar-21 3.6% Feb-21
Malawi 9.4 Mar-21 8.3% Feb-21
Mozambique 5.8 Mar-21 4.1% Jan-21
Pakistan 9.1 Mar-21 5.7% Jan-21
Seychelles 9.6 Mar-21 7.4% Jan-21
Sri Lanka 5.1 Mar-21 3.7% Jan-21
Ukraine 8.5 Mar-21 7.5% Feb-21
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