Inflation soars in major economies

Major economies across the world are taking the big step (of increasing their base rate by more than 0.5 percentage points. On Wednesday, the Canadian central bank announced it had bumped up the base rate by 0.5 percentage points. The last time Canada took the big step was 22 years ago in May 2000. A day earlier, New Zealand took the big step, too. Having increased the base rate by 0.25 percentage points last month, the Federal Reserve is also expected to take another around of cranking up the rate by 0.5 percentage points next month.

The inflation rates in major economies reached an all-time high in decades last month. America’s inflation soared 8.5%, the highest in 41 years, and the UK set a record in 30 years with 7%, while Germany posted a 7.3% of inflation to a record in 40 years, with France and Spain reaching their all-time highs in 37 years with 4.5% and 9.8%, respectively. Canada and New Zealand posted the highest levels of inflation rate in 31 years and 32 years each.

A massive amount of liquidity has been injected for stimulation during the Covid-19 pandemic, and there has been a constant inflation pressure owing to the disruption of global supply chains, the rising prices of raw materials from the Russian invasion of Ukraine, and the spending increase after the pandemic.

Things are worse for developing countries that rely on imports for their energy and food demand. Buenos Aires, the capital city of Argentina that posted a whopping 55.1% of inflation rate last month, saw thousands of protesters marching the city on Wednesday. Turkey’s inflation spiked to 61%. Sri Lanka declared default on its external debt on Tuesday.


Seong-Mo Kim mo@donga.com