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Inflation round-up

A quick online search for "inflation is coming" returns over 32 million web pages, while headlines around the world warn of soaring prices ahead. It's not just the usual suspects (some prophesying the return of rampant inflation ever since the 1970s; others trying to frighten us into buying gold, or their publications!). Serious analysts are also predicting much higher inflation ahead.

The idea is mainly that governments, having borrowed and spent so lavishly to support economies during the Covid-19 crisis, will be unable to wean themselves off such deficit spending and the global money supply will continue to balloon, thereby devaluing currencies and increasing demand; so sending prices upwards. Furthermore, supply chains may be greatly disrupted for some considerable time, creating scarcity. And with central banks changing policy stances towards tolerating inflation-target overshoots more readily, less will be done to contain inflationary pressures when they do rise.

Certainly, there has been a sharp political turn against austerity, which was so prevalent following the financial crash of 2008, so cuts could be more difficult to justify. However, much of the extraordinary spending governments have done to counter coronavirus damage, such as paying private sector wages through furlough schemes, or subsidising leisure activities to encourage people to return to restaurants etc, will not be needed once economies return to something like normality. If a vaccine materialises, fear of illness will subside and normal life can begin again. At this point, it shouldn't be too hard for governments to withdraw support schemes without incurring too much of a backlash.

While the United States' Federal Reserve has indeed said it will adopt a looser inflation-targeting regime, and others are likely to follow suit, the fact is that developed-world inflation, at least, has rarely threatened to overshoot central bank targets in over a decade. Indeed, during the pandemic price pressures have weakened in far more countries than have seen them strengthen. For instance, only 13 countries were recording deflation as the virus was beginning to spread globally; now, 45 have below-zero inflation.

As we've said before, Covid-19 makes it very difficult to predict inflation (Canada is having such problems calculating it during the crisis, that it is seeking new methods). While it has undoubtedly disrupted supply chains, once economic growth picks up, necessity is likely to link them again swiftly. Production and supply processes for foodstuffs, manufactured goods and lots of services have of course been severely restricted at times, which in normal circumstances might raise inflation, but demand has been hit even harder, and the effect of that has so far dominated in most countries and kept prices down. There were signs a few weeks ago that economies might be bouncing back faster than expected (China and other Asian economies have particularly outperformed expectations, while there have been shortages of certain goods in the United States due to unexpected surges in demand), which threatened to produce excess custom before producers had been able to ramp up supply. However, with Europe, America and others still struggling to contain the pandemic and many re-introducing lockdowns or other restrictions, forecasts for global growth have receded again.

The nature of the current crisis means that the economic picture, and therefore inflation prospects, is likely to be mixed for many months yet, producing stark contrasts across the world (possibly creating some significant revisions in expatriate cost of living indices) - much of Africa, for example, is beginning to open up just as the West is partially closing down again - but so far overall, more signs indicate lower inflation ahead than higher.

Remember also that, as far as expatriate cost of living is concerned, it is the comparison between home and host locations that counts. Therefore, if inflation does leap higher globally, divergence between countries will in many cases be diluted.

High-inflation countries (annual CPI 10%+)
Country CPI % Data month Trend IMF 2020 forecast %
Angola 22.8 Aug-20 ▲ Rising 20.7
Argentina 42.4 Jul-20 ▼ Falling n/a
D R Congo 19.7 Aug-20 ▲ Rising 11.0
Ethiopia 22.3 Jul-20 ▲ Rising 15.4
Ghana 10.5 Aug-20 ► Stable 9.7
Guinea 11.3 Jul-20 ► Stable 8.5
Haiti 23.4 May-20 ▲ Rising 22.2
Iran 30.4 Aug-20 ▲ Rising 34.2
Lebanon 112.4 Jul-20 ▲ Rising 17.0
Liberia 18.4 May-20 ▼ Falling 13.8
Nigeria 13.8 Aug-20 ▲ Rising 13.4
Sierra Leone 13.3 Jul-20 ▼ Falling 15.4
South Sudan 69.0 Dec-19 ▼ Falling 8.1
Sudan 166.8 Aug-20 ▲ Rising 81.3
Surinam 35.2 Jul-20 ▲ Rising 27.9
Syria 13.1 Aug-19 ▲ Rising n/a
Turkey 11.8 Aug-20 ► Stable 12.0
Turkmenistan 13.4 Dec-19 ▲ Rising 8.0
Uzbekistan 11.7 Aug-20 ▼ Falling 12.6
Venezuela 2358.5 Jul-20 ▲ Rising 15 000.0
Zambia 15.5 Aug-20 ► Stable 13.4
Zimbabwe 761.0 Aug-20 ▼ Falling 319.0

The Democratic Republic of Congo was the only newcomer to our high-inflation countries table (above) this time. The combination of disrupted food supplies due to Covid-19 restrictions and rapid currency depreciation sending import costs higher put official consumer price inflation well into double figures.

As our watch list shows below, Saudi Arabia has seen a big jump in inflation. Having introduced sales taxes (VAT) in 2018 at 5%, authorities recently hiked the rate to 15% to combat falling oil revenues. This sent the consumer price index sharply higher, although the effect will be temporary.

Finally, Oman, which was supposed to introduce VAT alongside Saudi Arabia two years ago, recently announced that it was now likely to do so, at 5%, in early 2022.

On watch! (notable rise in inflation, but below 10%)
Country Latest CPI % Data month Up from
Equatorial Guinea 6.6 Jun-20 5.1% Mar-20
Niger 5.7 Aug-20 2.6% Jun-20
Saudi Arabia 6.2 Aug-20 0.5% Jun-20
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