The Banking Executive Magazine - July 2022 Issue

Back to Basics RISING TREND OF WORLD INFLATION According to Pew Research and New York Times, in 2022 inflation rates in the United States and around the world rose to their highest levels since the early 1980s. While there is no single reason for this rapid rise in global prices, there has been a series of events that have worked together to trigger it. The COVID-19 pan- demic in early 2020 led to lock- downs and other restrictive measures that greatly disrupted global supply chains, from factory closures to bot- tlenecks at maritime ports. At the same time, governments issued stim- ulus packages and increased unem- ployment benefits to help mitigate the financial impact of these meas- ures on individuals and small busi- nesses. When COVID-19 vaccines became widespread and the econ- omy rapidly bounced back, demand for goods and services, fuelled in part by stimulus money and low interest rates, quickly outpaced supply, which is still struggling to get back to pre-COVID levels. Separately, Russia's unprovoked in- vasion of Ukraine in early 2022 led to a series of economic sanctions and trade restrictions on Russia, limiting the world's supply of oil and gas, since Russia is a large producer of fossil fuels. At the same time, food prices rose as Ukraine's large grain harvests could not be exported. As fuel and food prices rose, it led to similar increases down the value chains. FACTS AND FIGURES OF RISING WORLD INFLATION Pew Research Center analysis of data from 44 advanced economies re- veals that, in nearly all of the consid- ered 44 economies, consumer prices have risen substantially since pre- pandemic times. In 37 of the 44 nations considered in the analysis, the average annual in- flation rate in the first quarter of year 2022 was at least twice of the previ- ous two years. In 16 countries, infla- tion in the first-quarter of year 2022 was more than four times the level of two years ago. The analysis is based on data from the Organization for Economic Cooperation and Devel- opment OECD. The data covers 37 of the 38 OECD member nations, and seven other economically signif- icant countries. Among the countries studied, Turkey had by far the highest inflation rate in the first quarter of 2022 reaching 54.8%. Turkey has experienced high inflation for years, but the inflation rate rose sharply in late 2021 as the government pursued economic poli- cies, such as cutting interest rates rather than raising them. Other countries with very large in- creases in inflation between 2020 and 2022 include Italy, which saw a nearly twentyfold increase in the first quarter of 2022 compared with two years earlier (from 0.29% to 5.67%); Switzerland, which went from 0.13% in the first quarter of 2020 to 2.06% in the same period of this year; and Greece. Following the Greek economy’s near-meltdown in the mid-2010s, the country experi- enced several years of low inflation. Since then, however, prices have rocketed upward. The annual infla- tion rate in Greece reached 7.44% in the first quarter of year 2022, nearly 21 times what it was two years ear- lier in 2020 (0.36%). Annual inflation in the United States in the first quarter of year 2022 aver- aged just below 8.0%, the 13th-high- est rate among the 44 countries examined. The inflation rate in the first quarter of year 2022 in the United States was almost four times its level in the first quarter of year 2020. Regardless of the absolute level of in- flation in each country, most coun- tries experienced relatively low levels of inflation before the advent of the COVID-19 pandemic in the first quarter of 2020. However, as many governments sharply curtailed most economic activity, rising infla- tion rates started in mid to late 2021, as the world struggled to get back to normal activity. But there are exceptions to this gen- eral pattern. In Russia, for instance, inflation rates rose steadily through- out the pandemic period before surg- ing in the wake of its invasion of Ukraine. In Indonesia, inflation fell early in the pandemic and has re- mained at low levels. Japan has con- tinued its years-long struggle with inflation rates that are too low. In Saudi Arabia, the pattern was re- versed. The inflation rate surged dur- ISSUE 163 JULY 2022 the BANKING EXECUTIVE 39