Inflation in Spain, inflation in Italy, मुद्रा स्फ़ीति in India, inflation in Portugal and Brazil, inflation in the United States or Germany… France is far from being the only country where this word has been on everyone’s lips for several months. Because if countries are unevenly affected, prices soar on all continents.
Inflation forecasts for 2022 published by the International Monetary Fund (IMF) in its report last April draw up an unequivocal conclusion. In the vast majority of countries, the increase in consumer prices over the year should reach a level well above the 2 or 2.5% considered optimal by the central banks. In general, the IMF predicts inflation over one year of 5.7% in developed economies and 8.7% in emerging or developing countries.
The figures observed since the beginning of the year confirm the extent of the price rise predicted by the IMF. In May, inflation reached 8.1% in the euro zone, for example, while the IMF expects a rate of 5.3% for 2022. In the United States, which should experience inflation of 7.7% , according to the same forecast, prices rose in April by 8.3% year on year, according to the U.S. Bureau of Labor data.
“To see such a situation on a global level, you have to go back to the end of the 1970s and the beginning of the 1980s., explains Eric Heyer, director of the analysis and forecasting department of the French Observatory of Economic Conditions (OFCE). He recalls, however, that inflation was higher then than it is today, reaching for example more than 13% in France or the United States in 1980, according to the world bank.
At the origin of the current situation, a handful of factors which are of different importance depending on the country. “Inflation started long before the war in Ukraine”, recalls Eric Heyer. The price increase was first fueled by the economic recovery that occurred in 2021 in the aftermath of the health crisis. Demand had then increased very quickly without supply being able to follow, leading to a surge in prices.
The inflation experienced by the United States is the direct result of this post-Covid demand shock. “SUnder the Trump mandate and then under the Biden mandate, theeconomy has been over-stimulated by stimulus packages”, explains economist Stéphanie Villers. The mass mailing of checks to American households has, for example, encouraged overconsumption, causing excess demand in relation to supply.
This inflation could have been only temporary if it had not been fueled, in many countries, by other factors. The resumption of the Covid-19 epidemic in China, in a country where the State is using the so-called “zero Covid” strategy, has notably put a stop to domestic production. This has caused chain consequences: a slowdown in exports, disrupted global supply circuits, a degraded supply and therefore, ultimately, an increase in prices.
The war in Ukraine added to this already delicate context. By stopping Russian and Ukrainian exports, particularly of hydrocarbons and wheat, the conflict has caused soaring energy and food prices.
It is this supply shock that explains the severity of the inflation crisis in Europe. On the Old Continent, almost all countries are affected, although in a heterogeneous way. While inflation should, according to IMF forecasts, remain below 6% in 2022 in Portugal, Spain and Germany, some countries could be more affected, such as the United Kingdom (7, 4%) or Poland (8.9%). The inflation rate should even exceed 10% in Bulgaria or Lithuania. Russia, meanwhile, is paying the price for very heavy Western sanctions, and is expected to record an inflation rate of over 20%.
The consequences of the war in Ukraine do not stop at the gates of Europe and should also hit emerging economies like India, for which the IMF forecasts an inflation rate of 6.1% on the year, Brazil (8.2%) or South Africa (5.7%).
Why so many disparities? Because countries are unequally dependent on Russian hydrocarbons and world trade. But also because the measures taken to curb the rise in prices vary from one state to another. “If France is relatively spared, it is because it is less dependent on hydrocarbons because of its energy mix, and the government has sought to limit the rise in prices instead of distributing checks”explains economist Eric Heyer.
For some countries, inflation results from more structural causes. Damaged by a decade of economic crisis caused by the fall in the price of oil and heavy American sanctions, Venezuela should post an inflation rate of 500% for the year 2022, the highest in the world. A figure, however, down compared to 2020 (nearly 3,000% according to the IMF) or 2021 (nearly 700%). Sudan, where inflation is likely to reach 245%, is paying the price for a coup d’etat and the freezing of international aid that followed.
These difficult situations are sometimes aggravated by recent events. In Argentina, inflation has been in double digits since 2010, due to a devaluation of the currency caused by a lack of confidence, cautious investments or difficult climatic years. However, it should be further increased by the war in Ukraine and the rise in food prices, exceeding 50% according to IMF forecasts.
As a result of this diversity of factors, the situation is likely to develop differently depending on the region. In the United States, the Central Bank raised its interest rates to reduce the momentum of recovery. “As a result, we are starting to see a slowdown in demand, after inflation peaked at 8%”notes Stephanie Villers.
In Europe, on the other hand, the future is more uncertain. War in Ukraine, evolution of the health situation in China, measures taken by governments… Although the European Central Bank (ECB) has already warned that it will raise its interest rates in July, there are still many unknowns. “The peak is probably not yet reached”believes Stephanie Villers. “The most likely scenario is that of a return to normal, i.e. inflation around 2%, towards the end of 2023.“, predicts Eric Heyer.