Latest International Inflation Rates

Latest International Inflation Rates in 2022

A Decade of Low Inflation

For most of the past decade the world economy’s problem, has been too little inflation, not too much.

Low inflation allows governments to borrow heavily and central banks buy up debt and is key to the success of economic policies and financial markets.

Inflation in advanced economies has been stubbornly low ever since the 2008 global financial crisis.

The COVID-19 pandemic hit the global economy and lock-downs caused a collapse in economic activity and consumer demand. This led to a sharp fall in oil demand and energy prices across the world. Central banks responded to the pandemic with massive policy stimulus using interest rate cuts, asset purchases and liquidity injections to support the economy. Together these factors resulted in very low global inflation in 2020.

Inflation in 2021

During 2021 the rollout of vaccinations globally accelerated and appeared to work, then came Omicron. The world was getting back to work. We saw increased demand for goods and services, shortages, and increases in wages as we recovered from the pandemic.

The three main factors that put upward pressure on inflation in 2021:
1. Higher Energy Prices: Energy prices have dramatically increased beyond the level they were before the pandemic, which is pushing up inflation compared to the low prices last year.
2. The expiry of economic support and pent up demand: For example temporary VAT cuts pulled down inflation in 2020, the return in 2021 pushed inflation higher. Emerging bottlenecks raised the price of goods. A shortage of semiconductors caused by the boom in demand for tech equipment disrupted the production of cars, computers and smartphones.
3. Increased shipping costs: Global shipping costs almost trebled since the start of 2020. Space on container ships costs 180% more than a year ago.

Underlying prices rose at their fastest pace in years in 2021. Inflation picked up noticeably in most countries and has remained elevated going into 2022. This is not a bad thing. Modestly higher inflation is actually a positive indicator of the ongoing recovery in the global economy. The temporary nature of the factors pushing up inflation in 2021, combined with spare capacity in both product and labour markets, make it unlikely that inflation will increase further and become a real concern in 2022, unless....

The Outlook for Inflation in 2022

Shortages occur when the demand for goods and services, rises faster than suppliers can produce. Shortages recede, when demand falls faster than supply. Shortages are relative to demand. This varies for different products, however, the data shows demand growth is the bigger factor.

In many advanced economies the monetary policy response to the pandemic has more than made up for the incomes lost to widespread shutdowns. The spare cash in peoples pockets has increased demand. However monetary policy has not made up for the supply that those incomes had been producing.

Lower economic activity and shutdowns have decreased supply and some businesses have not come back. Despite consumer goods production now being well above the pre-COVID level, pent up demand has exploded even higher. The same is happening in the services sector as lockdowns lift.

Workers are the key input for services and employer demand is pushing up wages, which in turn push up prices. Official numbers of people participating in the economy has dropped dramatically since the pandemic. Partly this may be that the Boomer population are opting out due to Covid. Many in the 65-75 age group were still working before the pandemic, but have now decided to put their feet up. This year the first Baby Boomers (born in 1946) turned 75. The next decade and a half will see the Boomers exit the workforce completely. They need to be replaced in large numbers.

The higher levels of demand, higher energy and housing costs, combined with higher labour costs, means inflation will continue and maybe intensify, at least over the short to mid-term.

In the USA inflation has risen by 7 percent as at December 2021, the highest rate in 40 years. Supply chain problems due to continued waves of virus have locked down factories. Shipping routes have struggled to work through extended backlogs as consumers buy goods from overseas. In addition the costs of used cars and food have increased considerably.

In the UK inflation climbed to 5.4% as at December 2021, the highest rate in 30 years. Fuel, food, furniture and clothing prices surged, as well as restaurant and hotel bills. Demand for used cars, on average 28% more expensive than a year ago due to chip shortages squeezing the supply of new vehicles. Further upward pressure on inflation is expected in April, when a new energy price cap could see bills for millions of households hiked by 50%.

What is the current rate of inflation in 2022?

The latest available inflation rate for all countries world wide (as available on 20 January 2022) are as follows:

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