Inflation Is a Worldwide Issue in 2022, U.S. Consumers Feel the Heat

For months now, U.S. inflation has been on an upwards trajectory. The CPI has been above 8 percent for three straight months and hit a new multi-decade high of 8.6 percent in May. For millennials, such high inflation is a fairly new phenomenon as U.S. annualized inflation rose above 5 percent only four times between 1991 and 2019.

Amid soaring prices for everything from food products, cars, and gas, many consumers have blamed the Biden administration for not being able to control the spiraling inflation. In contrast, liberals say that inflation is a global phenomenon and not limited to the U.S. Is inflation worldwide or are only U.S. consumers feeling the heat from the massive price rise?

We see inflation pretty much around the world, spread across the developing as well as the developed world. Even Japan, which was a basket case for persistently low inflation (and even deflation), has seen its inflation rise to 2 percent.

The Eurozone’s inflation rose by 8.1 percent in May, which isn't far from the U.S. inflation for that month. U.K. inflation has also crossed 9 percent and economists expect the country’s inflation reading to soon show a double-digit rise.

Inflation in South Korea rose 5.4 percent in May, a fresh 14-year high. Inflation in Australia is also running near a two-decade high. Looking at developing countries, India's inflation hit an eight-year high of 7.79 percent in April before dipping to 7.04 percent in May.

Turkey has been battling double-digit inflation. However, the country’s woes are also due to the economic policies pursued by President Recep Tayyip Erdogan, who believes that interest rate cuts help to lower inflation, while the rest of the world believes it's the other way around. In Asia, Pakistan and Sri Lanka are witnessing very high inflation combined with a shortage of many goods.

Surprisingly, despite intermittent COVID-19 lockdowns, Chinese inflation is running near 2 percent. While the rest of the world is raising interest rates and tightening monetary policies, China is the rare major economy that has room for accommodative monetary policy to spur growth.

In the U.S., accommodative monetary policy, the federal government’s expansive fiscal policy, supply chain issues, rising gas prices, higher input costs, and demand-supply mismatch for many goods are driving inflation.

Looking at the global scenario, we see most of these factors. During the COVID-19 pandemic, central banks globally went on an easing spree while governments opened up their coffers. Arguably, the monetary and fiscal policy in the U.S. was much more accommodative than some of the other countries, which is why U.S. inflation is among the highest in the developed world.

For a lot of developing countries, the fall in their local currencies versus the dollar is adding to inflation. A lot of these countries import most of their oil and gas and have been suffering from the double whammy of rising energy prices and falling domestic currencies.

Also, global food prices have risen after Russia invaded Ukraine. The latter is among the major suppliers of food products like wheat and sunflower oil. As Ukrainian supplies have dwindled, prices for these products have risen in international markets. Given the globalized world that we live in, the price rise is manifesting in most countries globally.

Overall, inflation has been a global phenomenon. However, the Fed might have erred in not acting early. Many now blame the U.S. Central Bank for being behind the curve and sticking with its assumption of inflation being “transitory” for too long.