August inflation round-up

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With the Eurozone economy growing again, as quantitative easing works its magic, theEuropean Central Bank felt able this month to signal a tentative turning point for the low inflationthat has darkened the outlook in the bloc in recent years. However, in a month when the price of a barrel of oil fell below USD50 again (see Global inflation indicators below), and in whichChina devalued its currency, thereby potentially making its exports cheaper and providing another disinflationary impetus to the world, it is possible the ECB spoke too soon.

Furthermore, second-quarter growth figures out last week disappointed in virtually every Eurozone member state. The only positive surprise, remarkably, was Greece, but even its 0.8% real GDP expansion was flattered by its inflation rate of -2.2% (i.e. deflation). With the cost of oil likely to remain low for years, especially as the United States seems to be working towards lifting its export ban, it is at least giving a boost to otherwise weak domestic demand across much of the globe. Nevertheless, the ECB has much work to do before the inflation factor in the calculation of expatriate cost of living becomes more testing for those trying to manage international salaries in and out of the Eurozone.

Global inflation indicators

Infl1508GII

The sustained drop in oil prices has also enabled a succession of countries to decrease or end fuel subsidies. The United Arab Emirates is the latest to take the opportunity, calling a halt to such largesse on 1st August – saving state finances a hefty USD7bn a year. Obviously, fuel prices have gone up accordingly. Other Middle Eastern countries could follow suit.

One country which really should cut fuel subsidies, because it cannot afford them, is Venezuela.The government there provides the world’s cheapest petrol but is struggling to pay public sector salaries and other costs because of drastically reduced revenues since oil prices collapsed. To meet its obligations, it must keep printing copious bolivars, pushing the cost of living up to hyperinflation levels (see High-inflation countries below) in the process. Cutting subsidies would push prices even higher, of course, so policy is unlikely to change until after parliamentary elections in December this year.

Another ever-present in our high-inflation table, Argentina, is also to hold a national election in 2015 – for a new president, in October. The country’s inflation is considerably lower than Venezuela’s, but remains alarmingly high nonetheless. For many years the authorities have not been entirely honest about just how high it really is, according to most independent analysts. There is a small possibility that the forthcoming vote could change that.

High-inflation countries (CPI 10%+)

Infl1508HI

Finally, here’s this month’s inflation watch list:

On watch! (Countries showing marked upward inflation trends, but with rates as yet below 10%)

Infl1508OW

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