Australians are feeling the pinch from inflation, but in some parts of the world the rate is almost 11 times higher, causing a massive jump in the price of goods.
- Experts tell the ABC developing countries are likely to be hit harder by inflation
- One expert says countries with careful central banks have so far managed rising inflation better
- The situation in Australia is common across countries like the US, South Korea, Germany and Canada
According to the Reserve Bank of Australia, the country’s inflation rate is sitting at about 5 per cent.
In comparison, Turkey is dealing with one of the world’s highest rates of inflation, which at the moment is about 54 per cent, Fariborz Moshirian, director of the institute of global finance at the University of New South Wales, told the ABC.
Brazil and Argentina have inflation ranging from 10 to 15 per cent. And in Russia, inflation is running between 10 and 14 per cent, according to Professor Moshirian.
“There are some parts of the world where you don’t necessarily have accurate data about inflation, but that’s where you need to be more concerned, like Africa,” he said.
According to Professor Moshirian, most European countries have inflation ranging between 5 per cent and 7.5 per cent.
He singled out Greece and Italy as having high rates of inflation, at 12 per cent and about 7 per cent respectively.
Scandinavian countries had managed to keep theirs between 2.5 and 5 per cent, he said.
Developing countries to be worst hit
Professor Moshirian said people in countries where income was low would be impacted by inflation the most.
“If you have got only $200 a week to spend and you spend all your $200 for food and fruits and basic needs, and if that goes up by, say, 10 per cent [or] 20 per cent, you basically have $10 or $20 less to spend,” he said.
“Whereas if I have got $2,000 a week and my cost of food and basic needs are only $200, it wouldn’t be affecting me as much as say someone else whose income is only $200.”
And Professor Moshirian warned rising inflation rates would have consequences beyond immediate economics.
He said it would impact families, increase tensions and affect people’s physical and mental health, especially when “parents cannot provide adequate food on the table for children”.
Developing countries are also more exposed to external shocks. And due to supply chain issues and the war in Ukraine, prices are rising rapidly.
“That is very unfortunate because the central banks could increase interest rates too fast and [set them] too high,” Professor Moshirian said.
“And so this is a reaction to external shocks of the food supply, which is happening around the world especially for poor countries.”
He warned it could lead to recessions.
“And some central banks … if they can’t handle it, well, they’re hoping that recession will basically slow down the economy,” Professor Moshirian said.
Yixiao Zhou from the ANU’s Crawford School of Public Policy agreed developing countries would be hit the hardest by inflation, citing Sri Lanka as an example.
“Their economy can suffer much more [than developed nations’] from this runaway of inflation,” she told the ABC.
It might also lead to worsening exchange rates and troubles with servicing foreign debt.
Turkey was facing particularly high inflation due to overt political decisions made by the country’s President, Recep Tayyip Erdogan, Professor Moshirian said.
“They just contrived to keep the interest rate low,” he said.
“But when they kept interest rates low and prices kept going up, the value of their currency declined and contributed to more inflation because of the price of imports, which became more expensive.
“That was an unfortunate government intervention which shouldn’t have happened.”
Which countries are doing better?
Developed countries with careful central banks had fared the best, Professor Moshirian said.
“Which country is doing better depends on which country’s central bank is very much aligned with the actual reality of the economy,” he said.
He said that would be determined by which central banks managed inflation effectively, so their countries did not need to go into recession.
He named Australia, Europe, Japan and Canada as examples.
But he warned this depended on future developments and how they handled inflation over the next six to 12 months.
Dr Zhou said it was hard to identify countries that had done better, but pointed to Japan and China as outliers that had not been impacted as badly as others.
“China’s macroeconomic condition is pretty different from the other countries,” she said.
“It doesn’t have inflation pressure right now at all.”
Dr Zhou said Australia’s situation was common across developed countries, such as the US, South Korea, Germany and other European countries.
“It’s not that special anyway,” she said.
Professor Moshirian pointed to Canada as having similar circumstances to Australia.
“In Canada, basically they have the same issues as we have, and that is supply chain is an issue, the price of oil has gone up and is putting pressure on their inflation,” he said.
“Their central bank also had to act. They had to catch up to increase the interest rate.”
Professor Moshirian said the situation at the moment was very fluid and about three more months of data was required to give a more complete picture of how things were going.
“All the central banks in the Western world are increasing interest rates in effect,” he said.
“They’re trying to respond.
“We won’t know how well that’s worked until another couple of months.”