From London to Los Angeles and Berlin to Buenos Aires, people worldwide are labouring under the burden of price increases on everyday items. While inflation has begun to subside in some cases, the effects of it are still lingering, and in some nations inflation has remained stubbornly persistent.
The worst inflation spike in decades has come about thanks to a toxic and lengthy co*cktail of events that began with the coronavirus pandemic of 2020 and was compounded by Russia’s invasion of Ukraine in 2022.
During this prolonged period, the challenge for policymakers and central banks worldwide has remained the same: to tame inflation. The general approach has been to hike interest rates speedily and sufficiently in an attempt to slow down economies and put the brakes on rising prices.
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Balancing Act
But this is a balancing act, since the desire is also to avoid triggering too much economic damage and raising the spectre of recession. In Australia, fears abounded for months that the RBA had gone too far in lifting the cash rate from .1% to 4.35% in little more than eighteen months, and that the ‘narrow landing’ that previous governor, Philip Lowe, referred to had been overshot.
The consequence of failing to achieve these goals is a de-stabilising period of spiralling prices. Against such a backdrop, households and businesses find it harder to balance their books, struggle with payments, and generally plan for their futures.
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Fortunately, signs have started to emerge in recent months that policy setters worldwide are starting to get the better of the inflation issue and that a recession in Australia may be avoided.
In the US, for example, following an aggressive period of interest rate hikes, consumer price inflation stood at 3.4% in the year to December 2023 according to the country’s official Labor Bureau of Statistics.
This was a slight uptick of .3.% recorded a month earlier.
Encouraging Signs
Similarly, in the UK, there are also signs that the 14 consecutive interest rate rises imposed by the Bank of England since the end of 2021 are starting to have their effect on soaring inflation levels.
From its 11.1% peak of October 2022, the UK’s inflation figure as measured by the country’s official data compiler, the Office for National Statistics (ONS), has subsequently fallen to 6.8% in the year to July 2023. By year’s end it was 4%. This is still some way off the government’s medium-term 2% inflation target as imposed on the Bank, but suggesting that runaway inflation levels are now firmly in the rear-view mirror.
Here in Australia, we experienced our own ongoing and consecutive rate rises in an attempt to curb inflation; interest rates increased by a total of 4.35 percentage points since May 2022. The Reserve Bank of Australia has chosen to hold the cash rate steady at it’s December meeting, and it’s expected the next move may be a rate cut in the second half of the year.
While inflation now sits at 5.4% in Australia, it’s worth noting that the RBA moved slower than other central banks around the world so there may be a lag effect of rate rises flowing through the economy.
These are certainly encouraging trends, but not all countries are enjoying the same rebound in their economic fortunes.
Mixed Picture
Across the 40 or so countries—including Australia—that make up the Organisation for Economic Co-Operation and Development (OECD), for example, Turkey’s inflation figure stood at 64% to the end of last year according to the country’s central bank.
Other high OECD members for the same period included Colombia, with an inflation figure of 9.28% for the year to December and Poland (6.2%). Turkey, along with Australia and the UK are all G20 nations, a bloc of countries that represent the world’s major economies and that accounts for 85% of global financial output.
In good news, Hungary’s inflation rate decreased from 20.1% early last year to 5.5% by year’s end, while Slovakia eased from 10.9% to 5.9%.
Although Turkey’s inflation figure is undoubtedly high—largely thanks to the devaluation of its national currency, the lira—it remains dwarfed by fellow G20 member Argentina. See table 1 below.
High Inflation Nations (Jan 2024) | ||
---|---|---|
Country | CPI inflation% | |
Venezuela | 189.8 | |
Zimbabwe | 26.5 | |
Argentina | 211.4 | |
Sudan | 71.6 | |
Turkey | 64 | |
Source: International Monetary Fund, central bank data |
Consumer prices in Argentina rose by 113% in the year to July of 2023, according to the country’s central bank, before hitting 211.4% by the end of last year—their highest level since 1991.
Inflation in Argentina has been massively elevated since the country’s economy descended into crisis in 2018, when its foreign-debt obligations expanded to unsustainable levels and the peso collapsed against the US dollar. Last year, libertarian President Javier Milei came to power promising to end the economic crisis, but so far, no luck: the Argentinian peso rose by 25.5% in December alone, causing the country’s CPI to surge past 200%.
The Argentinian experience might appear extraordinary, but there are two other countries where rising prices have also had an impact.
Zimbabwe, for example, saw its annual consumer price inflation rate skyrocket to around 170% in June this year, according to the IMF, stoked by a sharp depreciation in the Zimbabwean dollar. Six months later it was back down to 26.5%.
Trumping even this figure is Venezuela, where the inflation rate has nudged 400% in 2023 following years of economic underperformance and social upheaval. It has since lowered to 189.90% by year’s end.
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Only Option
The prolonged period of high and stickier-than-expected inflation worldwide has resulted in surging interest rates—one of the few financial levers that central banks have at their disposal to put a dampener on rising prices.
At the time of writing (January 2024), the Reserve Bank of Australia’s cash rate—which influences borrowing rates across the economy—stands at 4.35% after 14 hikes. The rate that borrowers pay on their home loans is set even higher than this by the banks, with most variable mortgages now around 7% in many cases.
The story is similar in the US, where rates stand in a range between 5.25% and 5.5%, while across the Eurozone trading block as a whole, borrowing costs sit in a range between 3.75% and 4.25%.
For many Aussie households, the current elevated cost of borrowing is scary; yet the RBA continues to target an inflation rate between 2-3% to bring this back down to a level household spending is more accustomed to.
It’s not necessary to look too much farther afield, however, to see that things could be a good deal worse. See table 2 below.
Examples of High Interest Rates Worldwide (January 2024) | ||
---|---|---|
Country | Interest rate/% | |
Zimbabwe | 130 | |
Argentina | 100 | |
Venezuela | 56.69 | |
Ghana | 30 | |
Sudan | 28.3 | |
Congo | 25 | |
Malawi | 24 | |
Pakistan | 22 | |
Ukraine | 15 | |
Liberia | 20 | |
Source: Trading Economics |
Take Russia, for example, which was forced to hike its key interest rate by 3.5% last year to 12% after its national currency fell below the psychological mark of 100 roubles to the US dollar.
In South America, central bank rates in Brazil and Colombia are even higher and both stand at 13.25% in June last year. Unsurprisingly, in the face of soaring inflation, borrowing costs in Turkey are also elevated, coming in at 42.5%
In war-torn Ukraine, the figure was 22% mid-year of 2023—the same as in Pakistan—but by year’s end had lowered to 15%.
Given their surging inflation rates, it won’t be a shock to discover that both Venezuela and Argentina also share the dubious distinction of imposing some of the world’s highest interest rates on their borrowers.
This summer in Australia, the official cost of borrowing in Venezuela stands at a shade over 56% —an astonishingly high figure until you discover that in Argentina the figure is 118%, while borrowing costs in Zimbabwe stand at 100%.
The revelation won’t ease the cost-of-living crisis for Aussies at home, but it provides a salutary reminder of the benefits of living within a relatively stable economic environment.
Frequently Asked Questions (FAQs)
Which countries have the highest inflation rates?
The countries with the current highest inflation rates are Argentina (211%), Venezuela (189%), Turkey (64%) and Sudan (71%).
Which countries have the highest interest rates?
The countries with the highest interest rates are similar to those with the highest inflation rates. The current highest inflation rates by country are Venezuela (56%), Zimbabwe (130%), Argentina (100%) and Sudan (28%).
What is the highest inflation ever reported in Australia?
The highest inflation reported was 23.9% in December 1951. According to the ABS, this remains the highest consumer price inflation peak in 70 years of the Australian CPI series.
Has inflation peaked in Australia?
It appears so. In April 2023, a statement from the Treasurer Jim Chalmers confirmed recent ABS data had demonstrated that inflation had passed its peak and was beginning to moderate.
“These new numbers show annual inflation peaked last December but it will still remain higher than we’d like for longer than we’d like,” Chalmers said.