Inflation forces desperate leaders to try and soften the blow – Times of India
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NEW DELHI: The price of foods, fuels and other essential items are spiraling ever upward as Russia’s war on Ukraine compounds supply-chain woes stemming from the pandemic. Central banks may be in the driving seat when it comes to tackling inflation, but it’s governments that face the fallout and so are compelled to act.
While the nature of the problem is global, leaders know that the repercussions will be local. Already we’ve seen demonstrations in France driven by diminishing purchasing power. In the UK, where the governor of the Bank of England warned of “apocalyptic” food-price increases, what’s being called a cost-of-living crisis poses potentially the gravest threat yet to Prime Minister Boris Johnson’s government. In the US, President Joe Biden is pulling out the stops to try and halt the rise of the price of gasoline at the pump ahead of November’s midterm elections.
Below we set out some of the measures to combat inflation undertaken by governments in the world’s largest economies, and the political pressures they face.
AMERICAS
US
Inflation rate: 8.3% (April)
Maximal intervention, a lot at stake with midterms looming
Biden’s anti-inflation efforts have targeted gas, food, and auto prices through a series of executive actions. To drive down prices at the pump, Biden announced plans to release a million barrels of oil per day from strategic reserves over six months, and the suspension of a environmental rule blocking the summertime sale of higher-ethanol blend gas. The White House also said it would spend $1 billion in coronavirus funding to assist independent processors in the heavily consolidated meat and poultry sectors, and issued emergency regulations to speed the transit of grain, soy, and fertilizer along rail routes.
Separately, the administration expanded hours at the nations’ ports and imposed fines for carriers who leave containers idle on docks, in a bid to speed imports — which the administration hopes will improve the flow of goods including new cars and microchips used in American manufacturing. Biden has also suspended student loan payments and issued new regulations that effectively lower the cost of health insurance purchased through federal exchanges by poor and middle class families.
The White House is also pushing a trio of bills it says could help battle inflation. Emergency legislation passed to assist Ukraine includes funding to help counteract food shortages caused by the war. The Bipartisan Innovation Act includes hundreds of billions of dollars in research and manufacturing incentives, as well as funding to strengthen US supply chains. Biden has also pitched a rebooted version of his Build Back Better bill — which would see increased taxes on the wealthy and new spending to combat climate change — as anti-inflationary and deficit-reducing, though it’s looking as unlikely to proceed as the original. Polls suggest none of it is enough to retain control of Congress in November.
CANADA
Inflation rate: 6.8% (April)
Minimalist intervention with worse to come
While some of Canada’s regional governments have taken a smattering of targeted measures to help households with the surging cost of living, Prime Minister Justin Trudeau’s federal government has been wary of taking any steps that could fuel demand and stoke inflation further. One group Trudeau is seeking to help are first-time home buyers who have been crowded out of the nation’s exceedingly pricey housing market, introducing a measure that would allow young Canadians tax breaks to save for down payments.
But with gasoline prices rising at double digits, “this is the relative calm before the downpour,” said Doug Porter, chief economist at Bank of Montreal.
BRAZIL
Inflation rate: 12.2% (Mid-May)
Race to cut fuel prices ahead of presidential elections
As the war in Ukraine continues, more expensive oil is only adding to the pain for Latin America’s largest economy. State-controlled oil company Petrobras jacked up prices for the second time since early March, prompting criticism from President Jair Bolsonaro, who’s trailing in the polls for October’s election. Back in late March, Bolsonaro decided to replace the Petrobras CEO, opening the door to a messy change of leadership dominated by calls for price intervention and outright privatization. On May 24, he fired the replacement. With inflation still soaring and salaries failing to catch up, Bolsonaro criticizes Petrobras profits as excessive and flails around for other ways to curb consumer price increases.
First the government cut taxes on diesel and ethanol and now it’s pushing legislation through congress to limit another tax imposed by states on several items, including fuel, to provide more relief. A social spending package of $32.4 billion was designed to boost income for middle-class families. Now the economy minister is under pressure to find a way to finance subsidies, even though there are legal constraints on what the government can spend during an election cycle. Though they might give temporary relief, central bankers are among those warning that such fiscal measures are likely to make matters worse for Brazil.
MEXICO
Inflation rate: 7.68% (April)
Pact struck with business to cap consumer staples
Mexico’s government negotiated a pact with leading companies to cap the prices of items that most Mexican families buy. Under it, items ranging from corn to rice will have to stay affordable over the next six months despite international price jumps. Mexico’s President Andres Manuel Lopez Obrador insisted that the May deal was done hand-in-hand with businesses such as supermarket chain Grupo Comercial Chedraui SA and Wal-Mart de Mexico SAB, with no arm-twisting required. AMLO, as the president is known, has even used his daily press briefing to call on tortilla sellers not to be “abusive” in setting prices.
The government sweetened the deal for businesses with relief from tariffs and promises to help with security to lower insurance costs. It is also trying to step up supply of key foods by repurposing its troubled reforestation program to pay farmers to grow basic grains instead of trees, as part of the ruling Morena party’s appeal to make Mexico more self-sufficient and defend it against mercurial foreign markets. That rhetoric has been bandied about more often in the energy sector, as the country builds an oil refinery to be able to process its own crude, passed legislation to give the state electricity company a leg up over private business, and started a state liquefied petroleum gas company to compete with hawkish local providers.
The government will be able to give consumers fairer prices in the long run, officials say. AMLO has sworn that he won’t raise taxes, meaning some of the money for his plans to keep consumers happy — for example, through fuel subsidies — has had to come from other sources, such as the higher payments for Mexico’s Maya crude.
ARGENTINA
Inflation rate: 58% (April)
Stuck between IMF terms and political stasis
Officials in perennially crisis-prone Argentina are struggling to cool inflation with an unconventional mix of policies, as political infighting has weakened public confidence in the government of President Alberto Fernandez. A cobweb of price freezes, currency controls and tighter monetary policy have failed to stop prices from reaching the fastest monthly pace in 20 years.
Turmoil within Fernandez’s coalition over the direction of economic policy has debilitated the government’s already low credibility in the eyes of investors. Leaders of the coalition’s far-left bloc have publicly criticized Ivy League-educated Economy Minister Martin Guzman recently. He negotiated a $44 billion agreement with the International Monetary Fund that some lawmakers in the coalition voted against in congress.
The commodity price surge hits Argentina particularly hard since food prices make up 27% of the basket of goods used to measure inflation, by far the largest category. The government is also raising prices on electricity bills to comply with the IMF deal, a deeply unpopular measure that will translate into more inflation in the short term. Without a credible plan, many economists expect inflation to exceed 60% this year.
ASIA
CHINA
Inflation rate: 2.1% (April)
Maximum intervention to tackle at root, but lockdowns cloud picture
The Chinese government has taken a number of steps since late last year to curb surging commodity prices and limit the damage to company profits, especially for smaller businesses. It’s increased domestic production capacity in coal mining, boosted imports of commodities such as iron ore and released copper, zinc and aluminum from state reserves to slow price gains. It’s taken tougher action to crack down on speculative trading of commodities and hoarding. In April, China said it would cut import tariffs on coal to zero to help guarantee energy supplies.
The measures have had some effect so far, with the producer price index retreating slightly this year from a 26-year high recorded in October. As manufacturer to the world, a tailing off in factory-gate prices in China is a good sign for inflation globally.
However, China’s stringent Covid Zero approach to combating the pandemic is a major source of risk for the inflation picture. Lockdowns in trade hubs like Shanghai have upended supply chains and stalled production, causing delays and shortages of goods being transported across the country and shipped out to export markets. Consumer prices in China are already rising, although economists expect inflation to remain fairly muted around 2.2% this year. The market regulation authority has issued guidelines banning significant price hikes that are not backed by increases in production costs or purchase costs. It also said it would strengthen supervision and punish illegal acts of price gouging.
INDIA
Inflation rate: 7.79% (April)
Interventions focused on help with food
India, the world’s second-most populous nation, is feeling the food and energy pinch. The country’s retail inflation soared to an eight-year high of near 8% in April, staying above the Reserve Bank of India’s upper tolerance limit of 6%, largely as a result of rising fuel and food prices. Among the main drivers are a heat wave impacting crop yields added to supply-chain disruptions and increased transport costs. Food prices, which account for nearly half the consumer price index basket, is expected to remain high as a result of increases in the price of items such as edible oils, cereals and vegetables.
Prime Minister Narendra Modi’s government has reduced excise duty on motor fuel and states have cut value-added tax on gasoline and diesel. The federal government also waited until after key state elections in March to hike fuel prices, despite the increase in global crude prices. While finance minister Nirmala Sitharaman said in late April that inflation hadn’t breached the target “so badly,” a month later, on May 21, she announced further tax cuts on fuels and increased subsidies for fertilizers.
The government imposed restrictions on wheat exports and has reduced duty on some edible oils such as palm, soybean and sunflower, suspended futures trading in mustard oil and imposed stock limits. And to augment domestic availability of pulses, import restrictions on some commodities have been eased. Five kilograms of free rice or wheat is being provided to about 800 million people, or two-thirds of the population, in addition to food grains being sold to the poor at subsidized rates. Even so, the sharp rise in prices has created havoc among the poor and middle classes as they struggle to manage their household budgets.
JAPAN
Inflation rate: 2.1% (April)
Shock and fuel subsidies
While Japan’s headline inflation figures have stayed lower than in many other countries, price rises are still a shock for many in a country more accustomed to deflation. Prime Minister Fumio Kishida in late April announced 6.2 trillion yen ($48 billion) in steps to ease the burden on companies and consumers. The funds will be spent on raising the upper limit on gasoline subsidies for oil refiners to 35 yen per liter from 25 yen, as well as support for small and mid-sized companies and a cash handout of 50,000 yen per child for low-income households.
SOUTH KOREA
Inflation rate: 4.1% (March)
Just in office and already on the backfoot
South Korea’s President Yoon Suk Yeol, who took office May 10, appeared to backtrack on a key campaign pledge in a bid to to tackle inflation as consumer prices rise at the fastest pace in about a decade.
With pressure building on South Korean authorities as a result of the surge in energy and commodity costs after Russia’s invasion of Ukraine, Yoon’s transition team on April 28 announced its Covid-19 cash compensation plan to realize the then president-elect’s pledge to provide 6 million won ($US 4,700) for all small business owners. But when it came, the amount fell short: It’s only capable of handing out 4 million won to 5.5 million small business owners throughout the country.
Seoul is also pushing to cut an additional 30% of its fuel tax from May to damp inflation.
INDONESIA
Inflation rate: 3.47% (April)
Palm oil and political blowback
Rising food costs in Southeast Asia’s biggest economy are proving a headache for President Joko Widodo, who is once again confronted with having to weigh economic interests against the needs of his electorate. Last year, powerful business lobbies steered the leader away from tough Covid measures when Indonesia was becoming an epicenter for the virus. By last month, a 40% spike in edible oil prices had pit palm oil producers against a growing discontentment among the public over rising costs.
With the world’s biggest palm producer struggled to supply enough cooking oil to its population at an affordable price, Jokowi last month instituted an export ban in a move that whipsawed global markets. While the ban has slashed prices of fresh fruit bunches, hundreds of farmers protested, asking the government to come up with other measures to cool prices. That prompted Jokowi to remove the ban even as the cost of cooking oil barely budged.
With headline inflation at a three-year high in April, the government decided not to raise subsidized gasoline prices and electricity tariffs to ensure inflation remains within its target this year. Thanks to the commodities boom, the windfall in state revenue enables the government to boost spending by $27 billion this year, mainly to fund energy subsidies and compensate state energy companies.
AUSTRALIA
Inflation rate: 5.1% (first quarter)
Election budget
Australian Labor Party leader Anthony Albanese defeated Scott Morrison in May 21 elections for a variety of reasons, but polls showed cost-of-living issues at the top of voter concerns. Morrison’s government used the March budget to try and ease the pressures, with measures including halving the petrol tax from 44 cents Australian to 22 cents — bringing gasoline prices below the psychological A$2 ($1.41) a liter level — and announcing one-time payments of A$250 to six million Australians on low incomes, plus a A$420 cost-of-living tax offset at the end of the financial year on June 30.
It wasn’t enough to keep Morrison in office. During the campaign, Labor said the petrol tax excise will end in six months and won’t be renewed, and also promised a big cut to the cost of medicines in office. In his election-night speech, Albanese outlined an upbeat vision of Australia that takes climate change seriously, empowers women, and looks out for working families at a time when the inflation rate is its highest in decades, outstripping wages.
EUROPE, MIDDLE EAST & AFRICA
SAUDI ARABIA
Inflation rate: 2% (March)
Shrugging it off
The International Monetary Fund expects Saudi consumer price inflation to be 2.5% year-on-year in 2022 before slowing to 2% next year, far lower than the wider Middle East, seen at nearly 14%. For the most part, Saudi Arabia has very little room for maneuver in any case when it comes to monetary policy due to a long-maintained currency peg to the US dollar.
The Arab world’s largest economy tripled its value-added tax to 15% in 2020 to combat the economic downturn led by Covid-19, meaning inflation this year will likely fizzle down as last year’s base effects subside. The kingdom is keeping its expenditure stable this year despite much higher oil revenues and capped rising fuel prices last year.
SOUTH AFRICA
Inflation rate: 5.9% (April)
Forgoing taxes on fuel and sweet drinks
South Africa temporarily reduced its general fuel levy and postponed an increase in a tax on sugar-sweetened drinks to temper rising prices. The government regulates fuel prices, which include a tax used to finance a fund to compensate accident victims, along with other levies that make up about a third of what consumers pay. The almost 40% reduction in the duty imposed on each liter of fuel helped contain increases in the retail prices of 95-octane gasoline and the wholesale cost of diesel during the two months through May 31.
Still, motorists and commuters are contending with an almost 80% increase in domestic fuel prices since 2020’s pandemic-induced record low. High fuel prices are stoking inflation, with the rate of price growth edging closer to the 6% ceiling of the central bank’s target range in April.
While the measure to suppress fuel-price increases means tax revenue of 6 billion rand ($384 million) will be foregone, the government plans to recoup the funds by selling some strategic oil reserves. The duty is the fourth-biggest revenue line item in the budget. The government also delayed the implementation of a 4.5% increase in the levy on sugar-sweetened beverages by a year to April 2023 to allow for additional talks about lowering the threshold for the sugar content attracting the tax, and extending it to fruit juices.
TURKEY
Inflation rate: 70% (April)
More stick than carrot, conspiracies floated
Turkey’s government is implementing what seems to be a three-pronged approach to limiting price increases. The first strand is to put pressure on retailers over prices of food and basic goods via Trade Ministry inspections. The second is subsidizing energy costs for consumers and industries while offering state bank loans at as low as 9% to especially small companies. A third aspect involves pro-government media continuously bashing grocery chains and electricity utilities with the underlying message that by increasing prices they’re part of a conspiracy to overthrow President Recep Tayyip Erdogan.
RUSSIA
Inflation rate: 16.7% (March)
Government coercion
Russia was facing rising inflation even before the Ukraine invasion and US and European sanctions sent prices spiking even further. The central bank initially doubled its key rate to stabilize the ruble, but in recent weeks has been unwinding some of that hike as the currency and inflation have stabilized a bit. The government has leaned on producers and retailers to limit price increases on basic goods, including foods as well as some metals. Still, the central bank sees year-end inflation as high as 23%, a level last seen more than two decades ago. The bank warned that the economic upheaval as producers and suppliers adapt to the disappearance of products hit by sanctions forces major shifts in logistics and supply chains will push up costs across the economy this year.
UK
Inflation rate: 9.1% (April)
Adds to an already precarious economic and political outlook
Inflation, already at the highest rate in 40 years, is expected to hit 10% in the UK later this year, and the Bank of England has been hiking rates in response. The UK is also shouldering the extra inflationary pressure of Brexit, which has added extra costs to imports from the European Union and made it more difficult to tap EU labor to fill job vacancies. Britain’s tight labor market is one of its key drivers of inflation.
Chancellor of the Exchequer Rishi Sunak has sought to ease the burden for Britons by introducing measures such as a 5 pence ($0.06) cut to fuel tax and raising the threshold at which workers start to pay a payroll tax. He’s offered a 150 pounds council-tax rebate to most households, and a reduction of 200 pounds on energy bills this year, to be repaid through higher payments in future years. But he’s been deliberately cautious about announcing any extra fiscal help for fear of further fueling inflation. With the media clamoring for more action, the prime minister may well have to override his finance minister and deliver something to appease increasingly querulous voters.
GERMANY
Inflation rate: 7.4% (April)
Direct subsidies for families
With concerns that inflation could be here for the long haul, German Chancellor Olaf Scholz’s coalition has passed two packages of relief measures worth more than 30 billion euros ($31.6 billion) to cushion the impact of higher energy, gasoline and transportation costs.
The measures include the abolishment of an electricity bill surcharge to promote clean energy, a steep rebate on public transport tickets across the country for three months — a flat rate of 9 euros per month for regional rail and bus trips — a one-off payment of 100 euros per each child for families and a one-time payment of 300 euros for each income tax payer.
ITALY
Inflation rate: 6.2% (April)
Direct payments and ‘extraordinary measures’
Italy has budgeted about 6 billion euros to shield low-income workers from the impact of inflation, by offering them a 200 euro one-off payment. The new measure was approved by Prime Minister Mario Draghi’s government on May 2 as part of a 14 billion-euro package specifically designed to support the economy from the fallout of rising inflation.
Italy’s inflation is mostly driven by an increase in energy prices. “This is a temporary situation which we must tackle with extraordinary measures,” said the former European Central Bank chief. Without them, he added, “this might become a permanent condition.”
FRANCE
Inflation rate: 5.4% (April)
Caps on electricity, fuel subsidies for fishermen
France’s inflation rate unexpectedly rose in April to the highest level since the euro was introduced. While less significant than in other big European economies, price pressures have harmed consumer confidence, despite the government offsetting surging energy costs. Inflation and the hit to purchasing power were at the heart of May 1 demonstrations directed against newly re-elected President Emmanuel Macron.
Macron’s government has committed around 25 billion euros to inflation-busting measures, including grants for energy-intensive companies, an expansion of state-guaranteed lending and more furlough financing. Other initiatives include capping electricity and natural-gas prices, gasoline and diesel rebates for motorists, fuel subsidies for fishermen and checks to millions of households. The Insee statistics office estimates that such measures have shaved about 1.5 percentage points off inflation.
While the nature of the problem is global, leaders know that the repercussions will be local. Already we’ve seen demonstrations in France driven by diminishing purchasing power. In the UK, where the governor of the Bank of England warned of “apocalyptic” food-price increases, what’s being called a cost-of-living crisis poses potentially the gravest threat yet to Prime Minister Boris Johnson’s government. In the US, President Joe Biden is pulling out the stops to try and halt the rise of the price of gasoline at the pump ahead of November’s midterm elections.
Below we set out some of the measures to combat inflation undertaken by governments in the world’s largest economies, and the political pressures they face.
AMERICAS
US
Inflation rate: 8.3% (April)
Maximal intervention, a lot at stake with midterms looming
Biden’s anti-inflation efforts have targeted gas, food, and auto prices through a series of executive actions. To drive down prices at the pump, Biden announced plans to release a million barrels of oil per day from strategic reserves over six months, and the suspension of a environmental rule blocking the summertime sale of higher-ethanol blend gas. The White House also said it would spend $1 billion in coronavirus funding to assist independent processors in the heavily consolidated meat and poultry sectors, and issued emergency regulations to speed the transit of grain, soy, and fertilizer along rail routes.
Separately, the administration expanded hours at the nations’ ports and imposed fines for carriers who leave containers idle on docks, in a bid to speed imports — which the administration hopes will improve the flow of goods including new cars and microchips used in American manufacturing. Biden has also suspended student loan payments and issued new regulations that effectively lower the cost of health insurance purchased through federal exchanges by poor and middle class families.
The White House is also pushing a trio of bills it says could help battle inflation. Emergency legislation passed to assist Ukraine includes funding to help counteract food shortages caused by the war. The Bipartisan Innovation Act includes hundreds of billions of dollars in research and manufacturing incentives, as well as funding to strengthen US supply chains. Biden has also pitched a rebooted version of his Build Back Better bill — which would see increased taxes on the wealthy and new spending to combat climate change — as anti-inflationary and deficit-reducing, though it’s looking as unlikely to proceed as the original. Polls suggest none of it is enough to retain control of Congress in November.
CANADA
Inflation rate: 6.8% (April)
Minimalist intervention with worse to come
While some of Canada’s regional governments have taken a smattering of targeted measures to help households with the surging cost of living, Prime Minister Justin Trudeau’s federal government has been wary of taking any steps that could fuel demand and stoke inflation further. One group Trudeau is seeking to help are first-time home buyers who have been crowded out of the nation’s exceedingly pricey housing market, introducing a measure that would allow young Canadians tax breaks to save for down payments.
But with gasoline prices rising at double digits, “this is the relative calm before the downpour,” said Doug Porter, chief economist at Bank of Montreal.
BRAZIL
Inflation rate: 12.2% (Mid-May)
Race to cut fuel prices ahead of presidential elections
As the war in Ukraine continues, more expensive oil is only adding to the pain for Latin America’s largest economy. State-controlled oil company Petrobras jacked up prices for the second time since early March, prompting criticism from President Jair Bolsonaro, who’s trailing in the polls for October’s election. Back in late March, Bolsonaro decided to replace the Petrobras CEO, opening the door to a messy change of leadership dominated by calls for price intervention and outright privatization. On May 24, he fired the replacement. With inflation still soaring and salaries failing to catch up, Bolsonaro criticizes Petrobras profits as excessive and flails around for other ways to curb consumer price increases.
First the government cut taxes on diesel and ethanol and now it’s pushing legislation through congress to limit another tax imposed by states on several items, including fuel, to provide more relief. A social spending package of $32.4 billion was designed to boost income for middle-class families. Now the economy minister is under pressure to find a way to finance subsidies, even though there are legal constraints on what the government can spend during an election cycle. Though they might give temporary relief, central bankers are among those warning that such fiscal measures are likely to make matters worse for Brazil.
MEXICO
Inflation rate: 7.68% (April)
Pact struck with business to cap consumer staples
Mexico’s government negotiated a pact with leading companies to cap the prices of items that most Mexican families buy. Under it, items ranging from corn to rice will have to stay affordable over the next six months despite international price jumps. Mexico’s President Andres Manuel Lopez Obrador insisted that the May deal was done hand-in-hand with businesses such as supermarket chain Grupo Comercial Chedraui SA and Wal-Mart de Mexico SAB, with no arm-twisting required. AMLO, as the president is known, has even used his daily press briefing to call on tortilla sellers not to be “abusive” in setting prices.
The government sweetened the deal for businesses with relief from tariffs and promises to help with security to lower insurance costs. It is also trying to step up supply of key foods by repurposing its troubled reforestation program to pay farmers to grow basic grains instead of trees, as part of the ruling Morena party’s appeal to make Mexico more self-sufficient and defend it against mercurial foreign markets. That rhetoric has been bandied about more often in the energy sector, as the country builds an oil refinery to be able to process its own crude, passed legislation to give the state electricity company a leg up over private business, and started a state liquefied petroleum gas company to compete with hawkish local providers.
The government will be able to give consumers fairer prices in the long run, officials say. AMLO has sworn that he won’t raise taxes, meaning some of the money for his plans to keep consumers happy — for example, through fuel subsidies — has had to come from other sources, such as the higher payments for Mexico’s Maya crude.
ARGENTINA
Inflation rate: 58% (April)
Stuck between IMF terms and political stasis
Officials in perennially crisis-prone Argentina are struggling to cool inflation with an unconventional mix of policies, as political infighting has weakened public confidence in the government of President Alberto Fernandez. A cobweb of price freezes, currency controls and tighter monetary policy have failed to stop prices from reaching the fastest monthly pace in 20 years.
Turmoil within Fernandez’s coalition over the direction of economic policy has debilitated the government’s already low credibility in the eyes of investors. Leaders of the coalition’s far-left bloc have publicly criticized Ivy League-educated Economy Minister Martin Guzman recently. He negotiated a $44 billion agreement with the International Monetary Fund that some lawmakers in the coalition voted against in congress.
The commodity price surge hits Argentina particularly hard since food prices make up 27% of the basket of goods used to measure inflation, by far the largest category. The government is also raising prices on electricity bills to comply with the IMF deal, a deeply unpopular measure that will translate into more inflation in the short term. Without a credible plan, many economists expect inflation to exceed 60% this year.
ASIA
CHINA
Inflation rate: 2.1% (April)
Maximum intervention to tackle at root, but lockdowns cloud picture
The Chinese government has taken a number of steps since late last year to curb surging commodity prices and limit the damage to company profits, especially for smaller businesses. It’s increased domestic production capacity in coal mining, boosted imports of commodities such as iron ore and released copper, zinc and aluminum from state reserves to slow price gains. It’s taken tougher action to crack down on speculative trading of commodities and hoarding. In April, China said it would cut import tariffs on coal to zero to help guarantee energy supplies.
The measures have had some effect so far, with the producer price index retreating slightly this year from a 26-year high recorded in October. As manufacturer to the world, a tailing off in factory-gate prices in China is a good sign for inflation globally.
However, China’s stringent Covid Zero approach to combating the pandemic is a major source of risk for the inflation picture. Lockdowns in trade hubs like Shanghai have upended supply chains and stalled production, causing delays and shortages of goods being transported across the country and shipped out to export markets. Consumer prices in China are already rising, although economists expect inflation to remain fairly muted around 2.2% this year. The market regulation authority has issued guidelines banning significant price hikes that are not backed by increases in production costs or purchase costs. It also said it would strengthen supervision and punish illegal acts of price gouging.
INDIA
Inflation rate: 7.79% (April)
Interventions focused on help with food
India, the world’s second-most populous nation, is feeling the food and energy pinch. The country’s retail inflation soared to an eight-year high of near 8% in April, staying above the Reserve Bank of India’s upper tolerance limit of 6%, largely as a result of rising fuel and food prices. Among the main drivers are a heat wave impacting crop yields added to supply-chain disruptions and increased transport costs. Food prices, which account for nearly half the consumer price index basket, is expected to remain high as a result of increases in the price of items such as edible oils, cereals and vegetables.
Prime Minister Narendra Modi’s government has reduced excise duty on motor fuel and states have cut value-added tax on gasoline and diesel. The federal government also waited until after key state elections in March to hike fuel prices, despite the increase in global crude prices. While finance minister Nirmala Sitharaman said in late April that inflation hadn’t breached the target “so badly,” a month later, on May 21, she announced further tax cuts on fuels and increased subsidies for fertilizers.
The government imposed restrictions on wheat exports and has reduced duty on some edible oils such as palm, soybean and sunflower, suspended futures trading in mustard oil and imposed stock limits. And to augment domestic availability of pulses, import restrictions on some commodities have been eased. Five kilograms of free rice or wheat is being provided to about 800 million people, or two-thirds of the population, in addition to food grains being sold to the poor at subsidized rates. Even so, the sharp rise in prices has created havoc among the poor and middle classes as they struggle to manage their household budgets.
JAPAN
Inflation rate: 2.1% (April)
Shock and fuel subsidies
While Japan’s headline inflation figures have stayed lower than in many other countries, price rises are still a shock for many in a country more accustomed to deflation. Prime Minister Fumio Kishida in late April announced 6.2 trillion yen ($48 billion) in steps to ease the burden on companies and consumers. The funds will be spent on raising the upper limit on gasoline subsidies for oil refiners to 35 yen per liter from 25 yen, as well as support for small and mid-sized companies and a cash handout of 50,000 yen per child for low-income households.
SOUTH KOREA
Inflation rate: 4.1% (March)
Just in office and already on the backfoot
South Korea’s President Yoon Suk Yeol, who took office May 10, appeared to backtrack on a key campaign pledge in a bid to to tackle inflation as consumer prices rise at the fastest pace in about a decade.
With pressure building on South Korean authorities as a result of the surge in energy and commodity costs after Russia’s invasion of Ukraine, Yoon’s transition team on April 28 announced its Covid-19 cash compensation plan to realize the then president-elect’s pledge to provide 6 million won ($US 4,700) for all small business owners. But when it came, the amount fell short: It’s only capable of handing out 4 million won to 5.5 million small business owners throughout the country.
Seoul is also pushing to cut an additional 30% of its fuel tax from May to damp inflation.
INDONESIA
Inflation rate: 3.47% (April)
Palm oil and political blowback
Rising food costs in Southeast Asia’s biggest economy are proving a headache for President Joko Widodo, who is once again confronted with having to weigh economic interests against the needs of his electorate. Last year, powerful business lobbies steered the leader away from tough Covid measures when Indonesia was becoming an epicenter for the virus. By last month, a 40% spike in edible oil prices had pit palm oil producers against a growing discontentment among the public over rising costs.
With the world’s biggest palm producer struggled to supply enough cooking oil to its population at an affordable price, Jokowi last month instituted an export ban in a move that whipsawed global markets. While the ban has slashed prices of fresh fruit bunches, hundreds of farmers protested, asking the government to come up with other measures to cool prices. That prompted Jokowi to remove the ban even as the cost of cooking oil barely budged.
With headline inflation at a three-year high in April, the government decided not to raise subsidized gasoline prices and electricity tariffs to ensure inflation remains within its target this year. Thanks to the commodities boom, the windfall in state revenue enables the government to boost spending by $27 billion this year, mainly to fund energy subsidies and compensate state energy companies.
AUSTRALIA
Inflation rate: 5.1% (first quarter)
Election budget
Australian Labor Party leader Anthony Albanese defeated Scott Morrison in May 21 elections for a variety of reasons, but polls showed cost-of-living issues at the top of voter concerns. Morrison’s government used the March budget to try and ease the pressures, with measures including halving the petrol tax from 44 cents Australian to 22 cents — bringing gasoline prices below the psychological A$2 ($1.41) a liter level — and announcing one-time payments of A$250 to six million Australians on low incomes, plus a A$420 cost-of-living tax offset at the end of the financial year on June 30.
It wasn’t enough to keep Morrison in office. During the campaign, Labor said the petrol tax excise will end in six months and won’t be renewed, and also promised a big cut to the cost of medicines in office. In his election-night speech, Albanese outlined an upbeat vision of Australia that takes climate change seriously, empowers women, and looks out for working families at a time when the inflation rate is its highest in decades, outstripping wages.
EUROPE, MIDDLE EAST & AFRICA
SAUDI ARABIA
Inflation rate: 2% (March)
Shrugging it off
The International Monetary Fund expects Saudi consumer price inflation to be 2.5% year-on-year in 2022 before slowing to 2% next year, far lower than the wider Middle East, seen at nearly 14%. For the most part, Saudi Arabia has very little room for maneuver in any case when it comes to monetary policy due to a long-maintained currency peg to the US dollar.
The Arab world’s largest economy tripled its value-added tax to 15% in 2020 to combat the economic downturn led by Covid-19, meaning inflation this year will likely fizzle down as last year’s base effects subside. The kingdom is keeping its expenditure stable this year despite much higher oil revenues and capped rising fuel prices last year.
SOUTH AFRICA
Inflation rate: 5.9% (April)
Forgoing taxes on fuel and sweet drinks
South Africa temporarily reduced its general fuel levy and postponed an increase in a tax on sugar-sweetened drinks to temper rising prices. The government regulates fuel prices, which include a tax used to finance a fund to compensate accident victims, along with other levies that make up about a third of what consumers pay. The almost 40% reduction in the duty imposed on each liter of fuel helped contain increases in the retail prices of 95-octane gasoline and the wholesale cost of diesel during the two months through May 31.
Still, motorists and commuters are contending with an almost 80% increase in domestic fuel prices since 2020’s pandemic-induced record low. High fuel prices are stoking inflation, with the rate of price growth edging closer to the 6% ceiling of the central bank’s target range in April.
While the measure to suppress fuel-price increases means tax revenue of 6 billion rand ($384 million) will be foregone, the government plans to recoup the funds by selling some strategic oil reserves. The duty is the fourth-biggest revenue line item in the budget. The government also delayed the implementation of a 4.5% increase in the levy on sugar-sweetened beverages by a year to April 2023 to allow for additional talks about lowering the threshold for the sugar content attracting the tax, and extending it to fruit juices.
TURKEY
Inflation rate: 70% (April)
More stick than carrot, conspiracies floated
Turkey’s government is implementing what seems to be a three-pronged approach to limiting price increases. The first strand is to put pressure on retailers over prices of food and basic goods via Trade Ministry inspections. The second is subsidizing energy costs for consumers and industries while offering state bank loans at as low as 9% to especially small companies. A third aspect involves pro-government media continuously bashing grocery chains and electricity utilities with the underlying message that by increasing prices they’re part of a conspiracy to overthrow President Recep Tayyip Erdogan.
RUSSIA
Inflation rate: 16.7% (March)
Government coercion
Russia was facing rising inflation even before the Ukraine invasion and US and European sanctions sent prices spiking even further. The central bank initially doubled its key rate to stabilize the ruble, but in recent weeks has been unwinding some of that hike as the currency and inflation have stabilized a bit. The government has leaned on producers and retailers to limit price increases on basic goods, including foods as well as some metals. Still, the central bank sees year-end inflation as high as 23%, a level last seen more than two decades ago. The bank warned that the economic upheaval as producers and suppliers adapt to the disappearance of products hit by sanctions forces major shifts in logistics and supply chains will push up costs across the economy this year.
UK
Inflation rate: 9.1% (April)
Adds to an already precarious economic and political outlook
Inflation, already at the highest rate in 40 years, is expected to hit 10% in the UK later this year, and the Bank of England has been hiking rates in response. The UK is also shouldering the extra inflationary pressure of Brexit, which has added extra costs to imports from the European Union and made it more difficult to tap EU labor to fill job vacancies. Britain’s tight labor market is one of its key drivers of inflation.
Chancellor of the Exchequer Rishi Sunak has sought to ease the burden for Britons by introducing measures such as a 5 pence ($0.06) cut to fuel tax and raising the threshold at which workers start to pay a payroll tax. He’s offered a 150 pounds council-tax rebate to most households, and a reduction of 200 pounds on energy bills this year, to be repaid through higher payments in future years. But he’s been deliberately cautious about announcing any extra fiscal help for fear of further fueling inflation. With the media clamoring for more action, the prime minister may well have to override his finance minister and deliver something to appease increasingly querulous voters.
GERMANY
Inflation rate: 7.4% (April)
Direct subsidies for families
With concerns that inflation could be here for the long haul, German Chancellor Olaf Scholz’s coalition has passed two packages of relief measures worth more than 30 billion euros ($31.6 billion) to cushion the impact of higher energy, gasoline and transportation costs.
The measures include the abolishment of an electricity bill surcharge to promote clean energy, a steep rebate on public transport tickets across the country for three months — a flat rate of 9 euros per month for regional rail and bus trips — a one-off payment of 100 euros per each child for families and a one-time payment of 300 euros for each income tax payer.
ITALY
Inflation rate: 6.2% (April)
Direct payments and ‘extraordinary measures’
Italy has budgeted about 6 billion euros to shield low-income workers from the impact of inflation, by offering them a 200 euro one-off payment. The new measure was approved by Prime Minister Mario Draghi’s government on May 2 as part of a 14 billion-euro package specifically designed to support the economy from the fallout of rising inflation.
Italy’s inflation is mostly driven by an increase in energy prices. “This is a temporary situation which we must tackle with extraordinary measures,” said the former European Central Bank chief. Without them, he added, “this might become a permanent condition.”
FRANCE
Inflation rate: 5.4% (April)
Caps on electricity, fuel subsidies for fishermen
France’s inflation rate unexpectedly rose in April to the highest level since the euro was introduced. While less significant than in other big European economies, price pressures have harmed consumer confidence, despite the government offsetting surging energy costs. Inflation and the hit to purchasing power were at the heart of May 1 demonstrations directed against newly re-elected President Emmanuel Macron.
Macron’s government has committed around 25 billion euros to inflation-busting measures, including grants for energy-intensive companies, an expansion of state-guaranteed lending and more furlough financing. Other initiatives include capping electricity and natural-gas prices, gasoline and diesel rebates for motorists, fuel subsidies for fishermen and checks to millions of households. The Insee statistics office estimates that such measures have shaved about 1.5 percentage points off inflation.
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