Economies are a matter of balance, but right now the global economy is out of whack.
COVID-19 and Russia’s invasion of Ukraine are disrupting economies around the world by increasing the prices of goods and services.
The flow effects of the pandemic and war have combined with the individual circumstances of different countries, to influence inflation and here in Australia this has resulted in a peak not reached for two decades.
Economist Conrad Liveris said an inflation rate of around two to three percent would be ideal because that level translates into steady growth in the economy and wages.
“That’s the goal of the Reserve Bank of Australia, we want that because it helps economic growth,” he said.
“It’s when it gets out of control, things go backwards or even higher, like what we have in Australia right now.”
Mr Liveris said that with wages not rising at the same rate as inflation, the cost of living becomes much more difficult to manage.
In an effort to curb inflation, the Reserve Bank raised its cash rate, which influences how banks set interest rates.
The consensus of financial market economists is that the RBA will hike the cash rate, for the fourth consecutive time, by half a percentage point to 1.85%.
A half percentage point increase, also known as a 50 basis point rate increase, will see the average variable interest rate mortgage holder pay $610 more per month for pay off his loan from four months ago.
the United States of America
US President Joe Biden hopes new legislation his government is backing will curb escalating inflation.
Inflation rose to 9.1% in the United States in June 2022, the highest since November 1981.
The Inflation Reduction Act is far-reaching, covering changes to health care and taxes and encompassing measures to tackle climate change.
Americans have much of the same groceries and fuel price issues as Australia, but to a greater extent.
“For them, it’s supply issues from China and fuel issues. It’s the commodities for them that really cause these kinds of issues, and that causes, you know, distinct pain,” Ms. Liveris.
Americans are feeling the pinch when shopping for everyday items. Source: AAP / Seth Perlman/AP
He said the level of government stimulus in the United States was higher than in Australia, which played a role in inflation.
“The government invests a lot in different projects, mainly infrastructure and provides government subsidies, which also puts pressure on prices,” Liveris said.
“But that’s not always the best thing because when you give people $500, they go out and spend it immediately and companies are pretty good at recognizing that, so they raise their prices to meet it. That’s the same thing when you give rent assistance to a large group of people, landlords increase their rental price.
While the Turkish Statistical Institute said the country’s inflation rate accelerated for the 13th consecutive month to 78.6% in June 2022, Mr Liveris said that given the way the government Turkish was working, he would balk at any data released by the country on inflation. rates.
While Turks are struggling to afford only a fraction of the groceries they would have previously bought for their household, it is evident that the current level of inflation in the country is higher and higher than that of the most of the Turkish G20 counterparts.
Mr Liveris said high inflation in Turkey had 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 raising interest rates in an attempt to counter inflation, the country has instead lowered interest rates.
Erdogan voiced his belief that high interest rates push prices up – the opposite of conventional economic belief and fired central bankers who raised rates to keep inflation under control.
New Zealand began to feel the forcing some to consider crossing the divide to Australia.
In the June quarter, New Zealand recorded a 7.3% increase in the inflation rate, slightly higher than economists had expected.
In everyday life, this has led to an 18% increase in the price of fruits and vegetables over the past year and an increase in housing costs.
Wellington has been ranked among the least affordable cities in the world to buy a home, and rents have risen 12% over the past year.
The Reserve Bank of New Zealand has implemented six consecutive interest rate hikes and economists are warning there could be three more increases.
Mr Liveris said New Zealand’s remoteness as a country is the likely influence of its slightly higher inflation rate than Australia.
“Because it’s further away from places, it’s actually a harder place to get to, and so you have to put in more effort. So prices can go up faster when there’s a geographic distance to browse. “
Japan is experiencing some of the lowest inflation rates compared to other developed economies, with the latest annual inflation rate at 2.4% in June.
“It’s pretty healthy, it’s kind of what you would like, but having said that, Japan has a pretty complex economy with very high levels of public debt,” Liveris said.
Japan’s inflation rate is stable. Source: AAP / SOPA Images/Sipa United States
“They have a problem called stagflation and they’ve had it for decades, which is to say things are kind of really stable and immobile.”
World Bank President David Malpass has warned that the global economy could slide into stagflation.
The situation, which results from a combination of weak growth and rising prices, could trigger widespread suffering in poorer countries struggling to recover from the upheavals of the COVID-19 pandemic.