The World Is Full Of Inflation

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I often see pundits talk about how inflation is dead, how “global forces” are holding down inflation. This is nonsense. Most people live in countries where inflation is 3% or higher, often much higher. Here are just a few examples (estimates of 2021 inflation from The Economist). They contain most of the world’s population:

China: 3.1%
India: 4.0%
Ukraine: 6.6%
Turkey: 10.8%
Bangladesh: 5.6%
Indonesia: 3.2%
Kazakhstan: 6.7%
Pakistan: 6.0%
Philippines: 3.2%
Sri Lanka 5.1%
Uzbekistan: 12.2%
Mexico: 3.9%
Argentina 45.3%
Cuba: 6.0%
Uruguay: 7.5%
Venezuela 640% (world’s highest)
Angola: 19.1%
Egypt: 5.1%
Iran: 21.3%
Kenya: 6.0%
Lebanon: 98.8%
Libya: 7.7%
Nigeria: 16.8%
South Africa: 4.1%
Syria: 54.5%
Zimbabwe: 223%

Most of these are not particularly small countries. For instance, the combined population of Pakistan and Indonesia is nearly 500 million, roughly equal to North America.

You might wonder if the high inflation is somehow caused by the fact that these are developing countries. But why would an advanced country like the US forget how to do something that a less advanced country such as India can accomplish with ease? Turkey has double-digit inflation while neighboring Bulgaria has less than 3% inflation. And yet both countries have fairly similar levels of per capita GDP (in PPP terms.) And I’ve excluded from this list many extremely poor countries with almost no inflation.

The actual distinction is monetary policy. Bulgaria’s currency is fixed to the euro, and the ECB targets inflation at below 2%. Not surprisingly, eurozone inflation is below 2%.

People often mention China as a factor holding down inflation, which is nonsense. Growth in Chinese exports reduces the relative prices of imported manufactured goods but has no bearing on changes in the absolute price level. Argentina’s 45% inflation doesn’t mean that Argentine exports are very expensive, just that the Argentine currency is rapidly depreciating. Each country determines its own inflation rate (assuming a floating exchange rate).

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