The explosive growth of prices has triggered an upsurge in inflation rates all over the world in both developed and developing countries. While large economies, including advanced countries such as the US, the UK, Italy, France, and Germany have seen their one-digit inflation rising, the hardest-hit country, Venezuela, is expected to face an inflation rate of 2,000%.
Inflation in developed countries
In the United States of America, the inflation rate has reached a record level not seen since the 1980s with prices rising by 7.5% in January 2022 compared to January 2021. This increase was largely due to a surge in prices of used vehicles and energy but the cost of other important goods such as food, accommodation, and clothes also continually increased. Jonathan Silver, CEO of a company that tracks consumer purchasing behaviors, noted:
“While we’re hopeful prices will begin to decline in the coming months, prices at grocery stores and restaurants may take longer to adjust downward.”
See also: Highest consumer prices in 40 years in U.S. increase risks for emerging economies
For his part, U.S. President Joe Biden left room for optimism as well:
“While today is a reminder that Americans’ budgets are being stretched in ways that create real stress at the kitchen table, there are also signs that we will make it through this challenge.”
The President highlighted that salaries grew faster than prices last month.
Fig.1. Rising consumer prices
Source: CNBC
The United States of America is not the only country that has been hit by growing inflation rates. In Great Britain, prices rose by 5.4% at the end of December last year. Meanwhile, Italy recorded a 3.9% increase in the inflation rate in 2021, reaching 4.2% in December, a record level over the last decade. In Germany, the inflation rate is currently about 4.9%, slightly less than in December when it stood at 5.3%.
Overall, in the Eurozone inflation reached 5.1% in January, a record level not seen since 1997. It is predicted that the inflation rate in the Eurozone, which is based on the yearly percentage change in average consumer prices, will reach 4.8% in the first quarter of 2022.
“The largest driver of inflation in the euro area is energy prices and we all know why: weather, low gas stocks, and reserves, delayed maintenance in infrastructure, not enough investment, particularly in renewables, geopolitics, all of which cannot be resolved rapidly,” said Laurence Boone, an OECD chief economist.
According to Visual Capitalist predictions, major economies such as the US, China, Japan, Germany, the United Kingdom, India, France Italy, Canada, and South Korea are expected to reach inflation rates of 3.5%, 1.8%, 0.5%, 1.5%, 2.6%, 4.9%, 1.6%, 1.8%, 2.6% and 1.6% in 2022, respectively.
Developing countries
For emerging market and developing economies, in 2021 inflation rates reached a record level not seen since 2011, encouraging governments to raise their policy rates. Some countries are expected to face monetary policy contraction from advanced economies. At the same time, the tightening of belts will happen in parallel with price pressures and fragile development prospects.
For instance, in 2020, in the emerging market and developing economies the average inflation rate reached 5.07%, with sub-Saharan Africa recording a 10.26% rate, the Middle East and Central Asia 10.09%, and Latin America and the Caribbean 6.4%. In 2021, however, the emerging market and developing economies recorded a 5.53% inflation rate.
The highest inflation rate in 2022 is expected to be recorded in Venezuela at 2,000%. The Central Bank of this country has been injecting around 100 million bolivars weekly since October aiming to stabilize the hyperinflation which has stricken the country since 2017 following the US oil sanctions. Venezuela is followed by Sudan with an expected 41.8% inflation rate in 2022.
Fig.2. Inflation rate
Source: Advisor Channel
Fig.3. CPI inflation, year-on-year – world, advanced countries and emerging market and developing economies
Source: VoxEU
Signs of optimism
The top five countries with the lowest expected inflation rate in 2022 are Saint Kitts and Nevis, Trinidad and Tobago, Greece, and Japan with -0.5%, 0.0%, 0.4%, and 0.5% inflation rates while Grenada and Switzerland are both expected to record a 0.6% inflation rate in 2022.
At the same time, the IMF predicts that by 2025 the inflation rate in India, the US, and Canada will reach 4%, 2.5%, and 2.1%, respectively. Other countries such as South Korea, the United Kingdom, Germany, Italy, France, Japan, Switzerland, Spain, Netherlands, and Saudi Arabia are expected to record inflation rates at or below the 2% target often set by central banks. For emerging markets and developing economies, the inflation rate is expected to drop to 3.9% by 2026 compared to 5.53% in 2021.
