Inflation, measured by the consumer price index (CPI), is at a 40-year high in the United States (US) and the United Kingdom (UK), and at a 30-year high in Germany. In Japan, inflation has climbed at its fastest pace in eight years.
In India, CPI based-inflation has stayed above 7 percent in all the months other than July of the current financial year, well outside the Reserve Bank of India’s (RBI) comfort zone. Food prices – more specifically, cereals and vegetables – were the primary drivers of inflation in recent months.
Soaring inflation has led to street protests in many countries, with citizens demanding higher pay and government intervention to lower their cost of living. It has compelled central banks to rapidly raise interest rates to dampen demand and sacrifice growth, thus pushing economies towards a recession.
Apart from expensive petroleum products and food, a stronger dollar is a fresh worry for most nations as it increases imported inflation.
Here's a look at what’s driving inflation in the largest economies.
United States:
Consumer price inflation in the world’s largest economy has been at a 40-year high for a few months now. It rose 8.2 percent in September 2022 from a year ago, a rate higher than what most analysts anticipated but below the shocking 9.1 percent in June.
The Federal Reserve (the Fed) fears that inflationary pressures will not ease quickly – though the CPI is believed to have peaked – due to broken supply chains and labour shortages.
The Fed is widely expected to deliver another 75 basis point (bps) increase in interest rates at the next monetary policy meeting in November, as it is committed to lowering inflation to a long-term target of 2 percent.
Annualised inflation in September was driven higher by food, energy, and transportation costs. However, the rise in the energy index at 19.8 percent was slower compared to the 23.8 percent rise the previous month. On a month-on-month basis, energy prices declined due to a fall in petroleum prices, but food, medical care, and housing exerted upward pressure.
The Fed’s move to increase interest rates contributed to the strengthening of the US dollar against most other currencies, leading to turmoil in the foreign exchange market.
United Kingdom:
Consumer price inflation in a nation going through political turbulence accelerated in September. On an annualised basis, inflation rose by 10.1 percent in September, to the same level that was recorded in July, after cooling to 9.9 percent in August. Thus, the CPI inflation is again at a 40-year high. The month-on-month rise also accelerated, with consumer price inflation climbing 0.5 percent in September compared to 0.3 percent in the same month of 2021.
Housing and housing services had the largest contribution to the annualised rise in September, followed by food and non-alcoholic beverages. Rise in transport inflation at 10.9 percent was slower compared to the peak of 15.2 percent in June.
Germany:
Consumer price inflation in Germany rose 10 percent in September from a year ago, the highest reading since reunification in 1990. Earlier, flash data released at the end of the month for September suggested that inflation might have climbed 10.9 percent, its fastest pace in 70 years.
Inflation accelerated in September from 7.9 percent recorded in August because two temporary measures of a relief package for the transport sector - fuel discount and the 9-Euro ticket – ended.
The end of relief measures that were in force for three months, from June till August, led to a 14 percent rise in the transport index for September compared to a year ago. Sharp rises in energy prices and elevated food prices also contributed to the jump in inflation during the month.
Japan:
Consumer price inflation rose by 3 percent in September from a year ago, to its highest in eight years, as the yen weakened making imports expensive. The yen is at its lowest in more than 30 years, having fallen below 150 to the US dollar, as the Bank of Japan has maintained an easy money policy, unlike other central banks, to cool inflation.
The Japanese central bank has so far ruled out any tightening as it believes the rise in inflation is not demand-driven, but import-cost-driven. Inflation has been beyond the Bank’s 2 percent target for six consecutive months. Analysts believe that the bank may raise its inflation outlook but leave interest rates unchanged.
Inflation in Japan has been relatively benign compared to other countries as long-term contracts for the supply of liquefied natural gas (LNG) and oil and gas supplies from the Sakhalin fields provide some cushion. A temporary subsidy programme introduced in January, and a phased opening up of the economy as the pandemic abated, are also seen as reasons for a slower rise in inflation in Japan.
China:
Despite weak demand, consumer price inflation climbed 2.8 percent in September from a year ago, its highest since April 2020. In August, the inflation was 2.5 percent. The inflation was driven by higher prices of food, chiefly pork, which rose 36 percent in September, fresh fruits, which climbed about 18 percent, and fuel.
Pork prices rose as farmers facing shrinking profit margins slaughtered fewer pigs. Inflation is expected to remain benign as domestic demand remains weak due to continuing lockdowns to contain the fresh spread Covid from new variants.
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