All economies revolve around balance, but the global economy is currently out of control.
COVID-19 and the Russian invasion of Ukraine are destabilizing economies around the world by increasing the prices of goods and services.
The effects of the pandemic and war flow, combined with the individual circumstances of different countries, have combined to influence inflation and here in Australia, this has led to a high level that has not been reached for two decades.
Economist Konrad Liveris said that an inflation rate of about 2 to 3 per cent would be ideal because this level results in steady growth in the economy and wages.
“That’s the RBA’s goal, we want it because it helps economic growth,” he said.
“When things get out of hand, things go back or even higher, like what we have in Australia at the moment.”
Liveris said that because wages are not rising at the same level as inflation, the cost of living becomes more difficult to manage.
In an effort to curb inflation, the Reserve Bank has raised its cash rate, which affects how banks set interest rates.
The consensus of economists in financial markets that the Reserve Bank of Australia will raise the cash rate, for the fourth time in a row, by half a percentage point to 1.85 percent.
A half percentage point increase, also known as a 50 basis point interest rate increase, will cause the average variable rate mortgage to pay an additional $610 per month to service his loan compared to four months ago.
United States of America
US President Joe Biden hopes the new legislation backed by his government will curb soaring inflation.
Inflation rose to 9.1 percent in the United States in June 2022, the highest level since November 1981.
The Inflation Control Act is broad, covering changes to health care and taxes and including measures aimed at tackling climate change.
Americans face many of the same problems around grocery and fuel prices as they do in Australia but to a greater extent.
For them, it’s supply issues from China, and fuel. “It’s the household staples for them that are really causing these kinds of problems, and they’re just causing, you know, obvious pain,” said Mr Liveris.
Americans feel uncomfortable when shopping for everyday things. source: AAP / Seth Perlman/AFP
He said the level of government stimulus in the US is higher than in Australia, which played a role in inflation.
“The government is doing a lot of investing in various projects, primarily infrastructure and providing some government aid and that is putting pressure on prices as well,” Liveris said.
“But that’s not always the best thing because when you give people $500, they go out and spend it right away and companies are very good at realizing that, so they set their prices to meet that. It’s the same when you give a large group of people help with the rent, the landlords pay the rent. “.
While the Turkish Statistical Institute said the country’s inflation rate accelerated for the 13th consecutive month to 78.6 percent in June of 2022, Liveris said that given the way the Turkish government has been operating, he would be hesitant about any data the country releases on inflation rates. .
As people in Turkey struggle to buy only a portion of the groceries they would have previously purchased for their families, it is clear that the country’s current level of inflation exceeds most of their G20 counterparts in Turkey.
Liveris said Turkey’s high inflation has been pushed up as a direct result of the country’s lack of independence between institutions and the government.
On the instructions of President Recep Tayyip Erdogan, instead of increasing interest rates in an effort to counter inflation, the country has instead lowered interest rates.
Erdogan has expressed his belief that higher interest rates are driving prices higher – contrary to traditional economic belief and has fired central bankers who have raised interest rates to control inflation.
New Zealand is starting to feel forcing some to consider moving across the trench to Australia.
In the June quarter, New Zealand recorded a 7.3 percent increase in its inflation rate, which is slightly higher than economists had expected.
In daily life, this has seen the cost of fruits and vegetables rise 18 percent in the past year and housing costs increase.
Wellington has been ranked as one of the world’s least expensive cities to buy a home, and rents have increased 12 percent in the past year.
The Reserve Bank of New Zealand has made six consecutive rate hikes and economists are warning that three more are likely.
Liveris said that remoteness of New Zealand as a country is the potential effect of having a slightly higher rate of inflation than Australia.
“Because it is so far from places, it is actually more difficult to get to, and so you have to work harder. So prices can go up faster when there is a geographical distance to navigate.”
Japan is experiencing some of the lowest inflation rates compared to other advanced economies, with the latest annual inflation rate reaching 2.4 percent in June.
“That’s very healthy, that’s kind of what you want, but by saying that Japan has a very complex economy with very high levels of government debt,” Liveris said.
Japan’s inflation rate has remained flat. source: AAP / Soup/USA Girl Pictures
“They have a problem called stagflation and they’ve had it for decades, which is basically where things are kind of really stable and still.”
World Bank President David Malpass has warned that the global economy could fall into stagflation.
The situation, which comes from a combination of weak growth and rising prices, could lead to widespread suffering in poor countries struggling to recover from the disruptions caused by the COVID-19 pandemic.