Prices of many goods and services today are higher than they used to be. While some rose by a little, others by a lot triggering high inflation rates across the world. Soaring prices are emerging as a feature of the pandemic-era recovery across the world!
In the United States, the Federal Reserve is tackling the highest ever inflation of 7 per cent while in the European Union, it is rising faster than at any time since the euro currency was introduced.
In the United Kingdom, inflation hit 5.4 per cent in December, the highest in nearly 30 years and in the Asian economies, most of them are facing the threat of crippling inflation. In fact, prices are going up at their fastest rate since the early 1980s.
If the Covid-19 pandemic was blamed to be the primary factor driving inflation through demand and supply-side distortions, climate shocks and change in consumer habits till the beginning of 2022 coupled with massive monetary stimulus packages, that were rolled out over the last two years also contributed to increasing consumer prices, Russia-Ukraine crisis made it even worse.
Prices, which had already been rising, have shot up further in the recent weeks. Supply chains, already disrupted by the swift recovery from the pandemic recession, have started facing renewed pressure. And the global picture of prices has darkened further!
The International Monetary Fund in January raised its 2022 inflation forecasts for both advanced and emerging markets and developing economies, saying it expects elevated price levels to persist. It now expects inflation to average 3.9 per cent in advanced economies and 5.9 per cent in emerging markets and developing economies in 2022, before subsiding next year.
The inflation rate in the Sultanate of Oman increased during the month of November 2021 by 3.56 per cent compared to the same month of 2020, and the rate increased by 0.12 per cent compared to October 2021.
In January last, a Reuters poll of economists forecast that high inflation will haunt the world economy in 2022 on worries of slowing demand and the risk interest rates would rise faster than assumed so far.
According to Fitch Ratings’ March 2022 Global Economic Outlook, global GDP growth has deteriorated significantly as inflation challenges intensified following Russian war on Ukraine that threatened global energy supplies.
“Global inflation is back with a vengeance after an absence of at least two decades. This is starting to feel like an inflation regime change moment,” said Brian Coulton, Chief Economist at Fitch Ratings.
In March, S&P Global Economics lowered its real GDP growth forecast for emerging markets overall to 4 per cent for this year and 4.3 per cent in 2023, from 4.8 per cent and 4.4 per cent in the previous forecast, respectively.
The outlook for emerging markets in Europe, the Middle East and Africa has worsened due to the Russia-Ukraine conflict intensifying energy prices and weakening of trade, financing conditions, and investor and consumer confidence.
The six largest Latin-American economies are set to see growth this year of 1.7 per cent, marking a downward revision from S&P Global Ratings’ previous 2 per cent forecast.
Inflation has a greater impact on households in emerging economies than on those in developed economies, because spending on food, gas and transportation represents a larger portion of their disposable income. Rising energy costs, along with elevated food prices, raise concerns about potential social instability in several emerging economies, ultimately reducing policy predictability.
Now, the big question on everyone’s lips is how long the current rate of inflation will persist. There’s unfortunately no straightforward answer to this question. Countries around the world are all facing inflation, meaning that these countries need to find the right solution together, so as to not unfairly disadvantage other countries.
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