While my goal today is less about policy and more about simple comparisons, it won’t hurt starting out with a little background about inflation, its causes, and its consequences. Inflation is a straightforward concept. It is a macro concept that measures how much prices are changing in a nation. It is calculated by averaging together the prices of a bunch of things we usually buy. The Consumer Price Index is one of many measures of inflation. It looks at changes in the prices of the goods and services we most often purchase. Thus, we often speak of it as a measure of the nation’s cost of living.
When the cost of living is rising faster than our incomes, the buying power of our income falls. This raises caution because it means people find it harder to continue buying the same quantity/quality of goods and services. Some people think a little bit of inflation is good but when it reduces our ability to buy we get concerned. You could think of this in terms of inflation stages. Low inflation is okay and might be beneficial as most of us look forward to our wages rising, and firms often find life easier when their prices are increasing. When inflation gets higher, we begin to worry about purchasing power. When inflation accelerates even faster, we get even more concerned. At even higher rates, it creates additional concerns if it causes trading partners to shun our high-priced goods. It would cause alarm if it was a signal of deeper economic problems and foreigners decide to stop investing in our country.
With that brief background we wonder what was going on with respect to inflation in the world in 2017. The table below contains inflation information I took from the IMF. The information is divided by the six regions of the world. These regions account for 150 countries and sub-regions.
The first column contains the name of each region. Look below the table for the full region titles. In the ( ) is the number of countries and sub-regions reported in each region. The Advanced Countries include 40 countries/sub-regions.
The third column in the table labeled AVG gives the average inflation rate for all the countries in that region. The table is ordered by these inflation rates. In 2017, the Advanced Nations' inflation rate averaged 1.7%. The region with the highest inflation rate in 2017 was the Middle East. Those 23 countries averaged 7.2% inflation in 2017.
Clearly, from the table, emerging markets experienced significantly higher inflation than that of the Advanced Nations.
The second (Low or L) and fourth columns (high or H) show you the range experienced by countries in each of the regions. One Advanced Nation experienced deflation in 2017 of 0.5%. The highest inflation rate experienced by any Advanced Nation in 2017 was 3.8%. Notice the range of inflation rates for Emerging Asia – from 2.2% deflation to 7.5% inflation.
The number that sticks out the most in the table is the 2,818.4% inflation rate experienced by Venezuela in Latin America. The 30% rate for the Middle East came from two countries: Egypt and Libya.
The fifth column in the table is a measure of the inflation dispersion within each region. It tells you how many of the countries in that region had inflation rates of 3% or less. Of the 40 advanced countries, 93% had inflation rates of 3% or less in 2017. In contrast, only 15% of the CIS countries experienced 3% inflation or less. Despite the 12% inflation rate of Turkey, 92% of the countries in Emerging Europe had inflation of 3% or less.
These numbers raise more questions than we can possibly answer today. They communicate the idea that inflation in 2017 was experienced in highly varying degrees around the world. In some countries, prices fell while they were rising by almost 3,000% in others. Despite world trade and despite globalization, there is no such thing as a common inflation experience. While a casual viva la difference might sound like fun, the underlying point is that inflation has consequences, and both the causes and consequences of inflation are alive and well. We breathe easier in the USA with such low inflation. But the world in 2017 shows that when the right mistakes are made, damaging inflation could be closer than you think.
Inflation Rates, 2017
Regions L Avg H 3%
Advan (40) -0.5 1.7 3.8 93%
Em Asia (30) -2.2 2.8 7.5 56%
LA & C (32) -0.2 4.1** 2,818.4 53%
CIS (13) 2.5 4.7 13.7 15%
Em Eur (12) 0.7 6.8 11.9 92%
Mid East (23) -1.0 7.2 30.0 48%
*The data I used for this post came from the IMF’s World Economic Outlook for April 2018. More precisely, they come from Appendix Tables A6 and A7. The inflation measure quoted here is the annual percentage change in the Consumer Price Index. The complete names for the regions are:
Emerging and Developing Asia - China, India Vietnam and others
Latin America and the Caribbean – Argentina, Brazil, and others
Commonwealth of Independent States -- Russia and others
Emerging and Developing Europe – Turkey, Croatia, Hungary, and others
Middle East, North Africa, Afghanistan, Pakistan – Egypt, Saudi Arabia, and others
**The 4.1% average for Latin America excludes the very high inflation rates for Venezuela and Argentina