Rising global inflation – the blow to living standards around the world | Inflation

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After decades in the shadows, inflation is back. On Amazon you can find fridge magnets printed with words spoken 40 years ago by Ronald Reaganbefore the election that won him to the White House.

“Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hitman.”

Spiraling prices remain a real fear for many Americans, especially those who lived through the double-digit inflation experienced under Reagan’s predecessor, Jimmy Carter.

What was a painful but distant memory is now a new reality. And it’s global. The consumer price index rose 7% year on year in December, a level not seen since the 1980s. Britain is not far behind, with prices up 5.4% to the end of last year. In the euro zone – the 19 countries using the euro – it reached 5.1% in January, highest level since records began in 1997.

Here, the Guardian’s foreign correspondents explain how inflation affects living standards around the world.

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People shop at an outdoor food market in Manhattan, New York. Inflation is causing consumer prices to rise sharply in the United States in recent months for items such as food, rent, cars and other goods. Photography: Spencer Platt/Getty Images

For years, New Yorkers looking for an inexpensive meal have relied on a slice of $1 pizza. Not for a long time. As inflation soars, even the cheap slice is under pressure, and many of the city’s famous pizzerias are imposing price hikes to combat rising costs for everything from tomato sauce and handmade pepperoni. materials and cardboard pizza boxes.

US inflation hit its fastest pace since 1982 in January, pushing prices to a 7.5% annual ratethe third consecutive month in which inflation exceeded an annualized rate of 6%.

Supply chain issues associated with growing demand continue to inflate the price of fuel, rent, food and other essentials. The average price of a used car in the US was $28,205 (£20,782) at the end of December, according to Cox Automotive, the first time the median price of a used vehicle exceeded $28,000 .

Price increases have affected everyone, but inflation is hitting the poorest Americans the hardest. According to the Department of Labor’s Consumer Expenditure Survey, the lowest-income fifth of Americans already spend 83% of their income on housing and can ill afford rent increases, let alone fuel, food and other essentials.

The Federal Reserve is now preparing to raise interest rates in hopes of stemming the price spike. But with inflation soaring around the world, it remains to be seen how soon, or if, the central bank will succeed.
Dominic Rushe in New York

Italy

A gas station in Rome
A gas station in Rome. Rising fuel prices are a key driver of inflation Photo: Xinhua/REX/Shutterstock

Italians have felt the ripple effects of inflation primarily on their utility bills, with gas and electricity costs rising by more than 50% this winter. In turn, high energy costs have made it more expensive to run factories and transport goods, so price increases have also been felt in other areas, such as food and manufactures.

Preliminary data from Istat, Italy’s statistics agency, showed earlier this month that inflation rose 3.9% in 2021, reaching 4.2% in December – the biggest rise since more than a decade. The Bank of Italy forecasts inflation at 2.8% this year, although companies expect higher price increases at 3.2%.

Italy has not produced nuclear energy for more than three decades and is extremely dependent on energy imports.

“We are heavily dependent on imported energy, which is why, from this point of view, Italy is more vulnerable than other countries,” said Marcello Messori, professor of economics at the Luiss University of Rome.

“In the short term, there will be a big impact on utility bills,” he added, while predicting that Europe’s green and digital transition plan could have an impact on prices later on. . “I am in favor of both transitions but in Europe we are underestimating the possible impact in the medium term.”
Angela Giuffrida in Rome

Germany

A farmer digs rows of potatoes in parched soil near Luckau, Germany.
A farmer digs rows of potatoes in parched soil near Luckau, Germany. Photography: Sean Gallup/Getty Images

Inflation in Germany is currently around 5.3% – only the second time it has exceeded 5% since reunification in 1990 – and is expected to continue to rise at least until the middle of the year. . In its January monthly report, the Bundesbank noted “constantly high price pressure”.

The reasons for the inflation rate are manifold, including supply chain issues, price hikes to reflect pandemic-related losses, high demand for specific goods and services coupled with labor shortages , as well as an increase in the VAT rate, after it was temporarily reduced to help businesses last year.

The most shocking rises are in heating, gasoline, diesel, electricity and oil – which, according to the consumer price index, rose by an average of 18.3%, but in some cases as much as at 50%.

On the grocery bill, consumers pay about 6% more, but with big differences between products. Potatoes are the big surprise, with an increase of around 43% over one year, mainly due to poor weather conditions. Other foodstuffs such as tomatoes, lettuce, milk, lettuce, onions and eggs saw considerable price increases of between 5% and 20%.

In general, prices for imports to Germany have risen by around 21% – the biggest increase since 1980 – mainly due to supply chain problems linked to the pandemic.

While wages are also set to rise, with unions insisting on appropriate increases, low-income families are the hardest hit. Despite a 20% increase in the minimum wage, many are unlikely to feel enough relief to be able to offset the rising cost of living.
Kate Connolly in Berlin

Australia

A pedestrian walks past the Reserve Bank of Australia headquarters in Sydney.
A pedestrian walks past the Reserve Bank of Australia headquarters in Sydney. Photo: Flavio Brancaleone/AAP

For a commodity-based economy, Australia faces a tougher battle than most to maintain a price cap.

Consumer inflation accelerated at the end of 2021 to 3.5%, while the underlying rate monitored by the central bank – Reserve Bank of Australia (RBA) – reached its highest level since mid-2014 at 2.6%. Record fuel prices were a factor.

The RBA’s monk failure to resist lifting the official exchange rate from its all-time high of 0.1% until wages begin to rise by at least 3% a year will be in the spotlight. financial markets already anticipates the first rate hike by June. By next February, the rate could reach 1.25%, futures indicate.

Postponing the rate hike until June would at least avoid embarrassment for the federal government, which must hold national elections on or before May 21.

Private economists are less hawkish but doubt the RBA can wait beyond August. One question to watch is whether the unemployment rate drops below 4%, which would be the lowest since 1974, although there are many reasons why wage growth may remain limited, including the position of relatively weak labor bargaining. Peter Hannam in Sydney

Pakistan

With inflation at 13%, the Pakistani rupee is rapidly devaluing.
With inflation at 13%, the Pakistani rupee is rapidly devaluing. Photograph: Aamir Qureshi/AFP/Getty Images

The global wave of inflation has brought Pakistan to its knees. The rate soared to 13% in January as the national currency, the rupee, devalued rapidly.

Food prices soared 17%, leaving low- and middle-income families, who were already spending half their income on food, struggling to cope. The country recently saw a 5% rise in the price of potatoes, a 4.5% rise in the price of chicken and a 2.5% rise in the cost of bananas. The price of cooking oil has increased by 27% over the past three years and sugar is now more expensive than fuel. In January, for the first time in Pakistan’s history, petrol reached 150 rupees per liter (63 pence), a rise of around 40%.

Local political decisions have compounded global pressures. The government has agreed cost-cutting measures with the International Monetary Fund (IMF) to secure a $6 billion bailout, which includes petrol levies, higher energy tariffs and higher taxes. The cost of electricity in Pakistan is already double that of its neighbors India and Bangladesh.

Amid mass discontent and anger at the now unaffordable cost of living, Prime Minister Imran Khan recently said the impact of inflation was “keeping me awake at night”, but insisted on the that it was a “global phenomenon”. A protest march against inflation is currently planned by the political opposition.
Hannah Ellis-Petersen in Delhi

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