Economies are all about balance, but right now the global economy is out of whack.
COVID-19 and Russia’s invasion of Ukraine are unsettling economies around the world by increasing the prices of goods and services.
The flow-on effects of the pandemic and war have combined with the individual circumstances of different countries, to influence inflation and here in Australia, it has resulted in
, a high not reached for two decades.
Australia
Economist Conrad Liveris said an inflation rate of about two to three per cent would be ideal as that level results in steady growth in an economy and wages.
“That’s the Reserve Bank of Australia’s target, we want that because it helps economic growth,” he said.
“It’s when it gets out of control, that things go backwards or even higher, like what we’ve got in Australia at the moment.”
Mr Liveris said as wages are not rising at that same level as inflation, the cost of living becomes a lot harder to manage.
In a bid to curb inflation the Reserve Bank has been hiking its cash rate, which influences how banks set their interest rates.
The consensus of financial market economists is for the RBA to raise the cash rate, for the fourth time in a row, by half a percentage point to 1.85 per cent.
A half a percentage point increase, also known as a 50 basis point rate increase, will see the average mortgage holder on a variable interest rate paying an extra $610 per month to service their loan compared to four months ago.
United States of America
American President Joe Biden is hoping new legislation his government is backing will curb escalating inflation.
Inflation rose to 9.1 per cent in the USA in June of 2022, the highest since November 1981.
The Inflation Reduction Act is wide-ranging, covering changes to healthcare, and taxes and encompassing measures aimed at addressing climate change.
Americans are experiencing much of the same issues around the price of groceries and fuel as in Australia but to a greater extent.
“For them, it’s issues with supply from China and, and fuel. It’s the household staples for them that’s really causing these sorts of issues, and it’s just going it’s causing, you know, distinct pain,” Mr Liveris said.
Americans are feeling the pinch when shopping for everyday items. Source: AAP / Seth Perlman/AP
He said the level of government stimulus in the US was higher than in Australia, which played a part in inflation.
“The government’s doing a lot of investment into different projects, primarily infrastructure and providing some government handouts and that’s causing pressure on prices as well,” Mr Liveris said.
“But it’s not always the best thing because when you give people $500, they go out and spend it immediately and businesses are pretty good at recognising that, so they put up their prices to meet that. It’s the same when you give a large group of people rental assistance, landlords put up their price for rent.”
Turkey
While the Turkish Statistical Institute has said the country’s inflation rate accelerated for the 13th consecutive month to 78.6 per cent in June of 2022, Mr Liveris said given the way the Turkish government had been operating he would be hesitant about any data released by the country on inflation rates.
With people in Turkey struggling to afford just a portion of the grocery items they would previously have purchased for their household, it is obvious though that the current level of inflation in the country is above and beyond most of Turkey’s G20 counterparts.
Mr Liveris said the high inflation in Turkey has been pushed up as a direct result of the country’s lack of independence between institutions and the government.
On the instructions of President Recep Tayyip Erdoğan, rather than increasing interest rates in an attempt to counter inflation, the country has instead lowered interest rates.
Erdogan has voiced beliefs that high interest rates push prices higher – the opposite of conventional economic belief and has fired central bankers who have raised rates to bring inflation under control.
New Zealand
New Zealand began feeling the
, forcing some to consider a move across the ditch to Australia.
In the June quarter, New Zealand recorded a 7.3 per cent increase in the inflation rate, slightly higher than what economists had forecast.
In day-to-day life, this has seen the cost of fruit and vegetables rise by 18 per cent in the past year and increased housing costs.
Wellington has been ranked as one of the world’s least affordable cities in the world to buy a house, and rents have increased by 12 per cent in the past year.
The Reserve Bank of New Zealand has implemented six consecutive rises in interest rates and economists are warning there could be a further three increases.
Mr Liveris said the remoteness of New Zealand as a country is the likely influence of it having a slightly higher inflation rate than Australia.
“Because it’s further away from places it’s actually a harder location to get to, and so you’ve got to put in greater effort. So prices can rise faster when there’s a geographical distance that needs to be navigated.”
Japan
Japan is seeing some of the lowest inflation rates compared to other developed economies, with the latest annual inflation rate at 2.4 per cent in June.
“That’s pretty healthy, that’s kind of where you’d want it, but saying that, Japan has quite a complex economy with very high levels of government debt,” Mr Liveris said.
Japan’s inflation rate has been steady. Source: AAP / SOPA Images/Sipa USA
“They have an issue called stagflation and they’ve had it for decades, which is by basically where things are kind of just really stable and still.”
World Bank President David Malpass has warned the global economy could fall into stagflation.
The situation, which comes from a combination of weak growth and rising prices could trigger widespread suffering in poorer countries struggling to recover from the upheaval of the COVID-19 pandemic.
By Aleisha Orr
Source: SBS, AAP, AFP, Reuters
