From barely noticeable to extremely high: Inflation in a global comparison
The “good” news first: With an inflation rate of 7.9 percent on an annual base* (as of December 2022), Germany is in the middle of the global inflation comparison. In fact, the rate of inflation varies greatly around the world. For example, there are literally “worlds” between China and Turkey: In the Land of Smiles, the inflation rate is 1.77 percent on an annual basis, while in Turkey it is over 64 percent. But why are there these significant differences and which countries are coming through the inflation crisis particularly well or poorly?
*The inflation base in the past year amounts to 7.9% on average in 2022 compared to 2021 in the Federal Republic of Germany.
What is inflation?
The most commonly used definition of inflation is Decrease in the value of money (depreciation of money). When the price level of goods and services rises steadily, but wages and salaries only rise slowly, purchasing power decreases. With a high inflation rate, consumers and companies therefore receive less for the same monetary value than before.
There are various causes of inflation. Supply inflation is characterized, for example, by rising prices of production factors such as raw materials or non-wage and wage costs. Imported inflation may be caused by a rise in the price of raw materials - such as during the 1973 oil crisis. Demand inflation results in an increase in prices because consumers demand certain goods or services more frequently. This happens especially during periods of boom.
The money supply in an economy also plays a major role in the development of inflation. If the macroeconomic supply of goods is offset by too large a money supply (e.g. due to the ECB's zero-interest rate policy), there is a condition for inflation. Since conditions vary worldwide depending on the country or economic area, inflation is also not equally pronounced everywhere.
Why does inflation vary?
Inflation is usually determined using consumer price indices. This involves filling a typical local shopping basket with everyday products and monitoring their prices over a period of many years. Such a shopping basket usually contains several hundred types of goods, which are occasionally exchanged and weighted depending on technical progress or changing living standards. In order to make shopping basket price changes comparable internationally, Eurostat does not use the national consumer price index (CPI), which reflects the actual cost of living, but the Harmonised Index of Consumer Prices (HICP).
The current record inflation rate is linked to the war in Ukraine. Prices for raw materials, fertilizers, agricultural products and foodstuffs rose sharply in many countries following the invasion. In addition, energy (oil, natural gas, liquefied petroleum gas) became significantly more expensive after the outbreak of war.
In Europe alone, however, it is clear that inflation does not have an equal grip on all countries. During Luxembourg (5.3 percent), Spain (5.4 percent) and France (5.8 percent) As a result of inflation relatively slightly, the inflation rate in the Baltic states is enormously high. Estonia is at the top with an annual inflation rate of 17.6 percent. With regard to the generally high inflation in the Baltic States, experts point primarily to a different structure of private household spending. For example, food that has risen sharply in price is estimated to account for almost a quarter of the available salary there. Estonia, Latvia and Lithuania are also heavily dependent on agricultural imports and fertilisers from Russia, which they must now replace with more expensive products from abroad.
There are also some differences in the comparison between the USA and the euro area. For example, the share of inflation caused by energy prices is significantly higher in the euro area than in the USA. By contrast, the contribution of the prices of goods and services to overall inflation in the USA is relatively large.
Which countries are barely affected?
At 1.2 percent and 1.4 percent, inflation prevails in the Maldives and in bolivia still relaxed conditions. Mainly because the local economy is relatively independent of other countries. Among the major industrialized countries, China (2.1 percent), Japan (2.5 percent), Saudi Arabia (2.2 percent), Switzerland (2.9 percent) and the United Arab Emirates (2.5 percent) have the lowest rates.
The reasons for this vary. Saudi Arabia and neighboring Emirates are benefiting from the sharp rise in oil and gas prices. China and Japan, in turn, subsidize their economies and citizens enormously and extract many raw materials themselves, so that rising world market prices have no major effect here. Switzerland benefits from its strong currency, which makes imports cheaper than elsewhere. In addition, our neighboring country is not so dependent on oil and gas, as Switzerland can largely supply itself with energy through hydroelectric and nuclear power plants.
Which countries are severely affected?
Unfortunately, countries with poor populations can only dream of such low inflation rates. For example, the inflation rate in Venezuela is 255 percent, in Sudan even at 382 percent. However, the high inflation in these countries is only partly due to the war in Ukraine.
In 2022, for example, Sudan suffered from a months-long drought. As a result, the harvest was scarce and the usual grain deliveries from Russia and Ukraine were also absent. Food in particular has therefore reached astronomical prices.
Venezuela, in turn, has had an economic crisis characterized by corruption and hyperinflation in a stranglehold for a long time. Dizzying inflation rates are recorded year after year. According to the central bank BCV, the inflation rate was an incredible 2959 percent in 2020.
Turkey has by far the highest inflation rate in Europe. There, (official) consumer prices soared by more than 80 percent in September 2022; inflation is currently around 64 percent on an annual basis.
Prices in Turkey rose particularly sharply as the resource-poor country is dependent on imports. However, as a result of the war in Ukraine, raw materials have become very expensive and must be paid for in dollars on world markets, which further aggravates the situation. Because in 2021, the Turkish currency lost 44 percent in value, and a further 27 percent in 2022.
According to a survey by the Ifo Institute and the Institute for Swiss Economic Policy among 1537 experts from 133 countries, the inflation rate is likely to reach 7.1 percent this year, fall to 5.8 percent next year and 4.5 percent in 2026.
Inflation expectations for this year are particularly high in South Asia (23 percent), South America (25 percent), North Africa (32 percent) and East Africa (35 percent). In Western Europe (5.4 percent), North America (5.2 percent) and Southeast Asia (5.3 percent), they are well below the global average.
