Rocketing energy prices, rising food costs and supply bottlenecks have pushed countries around the world into a high cost of living crisis.
As global inflation hits a 25-year high, many people from both rich and poor countries are dreading the loss of purchasing power following sharp increases in the cost of living.
COVID-19 has hit global supply chains with a combination of pent-up demand and delays to shipping as factories across the world face lockdowns and worker absence. This has led to rising prices, particularly for raw materials.
Energy costs have been one of the main drivers of what has become the highest inflation in a generation. In recent days, the price of US benchmark crude oil hit a seven-year high of $91 a barrel, a massive jump of about 36% since 1 December 2021.
The effects of these negative developments have been most destructive for poorer countries with fragile economies.
Rising living costs have caused alarm among governments and central banks around the world.
Asia is the only continent not experiencing the sharp price increases seen elsewhere. Across much of Asia, price rises are subdued.
Ever-present in Africa
Across Africa, however, inflation is an ever-present problem and the impact of the pandemic has made the situation worse.
One trend that is common among African countries with high inflation rates is that they are mostly import dependent. When a country imports more than it exports, it naturally becomes susceptible to many economic challenges, including weak exchange rates and high inflation.
Dramatic increases in the costs of raw materials and shipping, which translated into higher prices of imported goods, have pushed up inflation in Africa, and these have eroded the already weak purchasing power of Africans who receive very low salaries and wages.
The fragile economies of African countries have deteriorated directly because of the impact that the pandemic is having on the global economy.
Food and sub-Saharan Africa
Food accounts for roughly 40% of sub-Saharan Africa’s consumption basket – a measure of goods and services used to measure consumer price index (CPI) inflation.
Many African countries spend billions on food imports and the demand for foreign currencies to cover imports weakens local currencies, resulting in further inflation.
As most African countries import refined petroleum products, the sharp rise in prices for petroleum has also increased the cost of living for many Africans.
The cost of living across the 38 countries in the Organisation for Economic Co-Operation and Development (OECD) jumped by 5.8% in the year to November – the highest rate since May 1996. Rising energy prices are the biggest factor in the increase.
The cost of energy soared by 27.7% in the OECD area in the year to November – the biggest increase since June 1980, when interruptions in the world’s oil supply due to wars in the Middle East caused energy prices to spike.
Eurozone inflation is at 5%, the highest since the single currency was launched more than 20 years ago. The OECD data came as the latest global risks report from the World Economic Forum (WEF) showed business leaders and economic experts are increasingly worried about “livelihood crises”.
Across European countries, the cost of living has risen as inflation in the Eurozone has notched new record highs. Consumer prices have jumped 5.1% from January last year, up from 5% in December and surpassing analysts’ estimates.
Inflation at 7%-plus
Energy is top among the causes of the rise, as prices soar across the European continent and many households struggle to cope with the additional costs. Prices rose by 28.6% in January in the 19 Eurozone countries.
The increases are being fuelled by sky-rocketing international prices for fossil fuels such as oil, gas and coal, and they highlight European countries’ dependence on these.
The cost of living in the United Kingdom hit a new 30-year high in January 2022 as energy, fuel and food prices continued to soar and retailers reined in seasonal discounts. Prices surged by 5.5% in the 12 months to January, up from 5.4% in December, increasing the squeeze on household budgets.
Inflation is now rising faster than wages and is expected to climb above 7% this year.
Since pandemic restrictions were eased last year, companies have faced higher wage, shipping and energy costs which they have passed on to customers.
The UK’s Office for National Statistics (ONS) said electricity bills were up 19% in the year to January and gas bills up by 28%. The cost of household staples is also rising, with pasta prices up 15%, cooking oil up 16% and margarine soaring 37% in the year to January, squeezing household budgets.
Inflation – which has been at a 30-year high since December – is set to get worse in April when the energy price cap in the UK is lifted. It will push up the average household fuel bill up by £693 a year in England, Scotland and Wales. At the same time, a planned rise in National Insurance (social security contributions) will also be hitting people’s pockets.
The Bank of England has already put up interest rates twice since December in an attempt to tame inflation, most recently doubling the rate from 0.25% to 0.5% and analysts anticipate that it could raise rates again to 0.75% soon.
In Canada, the rising cost of living and the added burden of COVID-19 are forcing families further into debt, a new survey suggests.
The 2021 edition of the BDO Affordability Index, an annual survey which examines how affordable life is in Canada, suggests that many Canadians’ quality of life is diminishing further as they accumulate more debt and the pandemic drags on.
The survey, conducted by the Angus Reid Group in partnership with BDO Debt Solutions, found that 43% of Canadians added to their existing debt because of the pandemic, up 4 per cent compared to last year.
The survey reported that 26% of Canadians incurred at least one new type of debt, the most common being credit card debt, and 70% of these Canadians said the new debt had made their standard of living worse.
According to the BDO Affordability Index, only 51% of this group said they would be able to restore their standard of living to pre-pandemic levels.
Spending increases block savings
Of the 42% of Canadians who were saving less or not at all during the pandemic, 57% said it was because of an increase in spending on groceries and housing, while 51% said it was because of reduced income or job loss.
BDO says 23% of Canadians find it challenging to put food on the table for themselves and their families, up 4 per cent on last year. The survey reports that 31% of those surveyed said that paying for utilities is a challenge; 35% said the same about transportation and clothing costs.
Prices in the United States are rising at their fastest rate in almost 40 years, as inflation rose to 7.5% in January, its highest level since 1982.
December’s increase marked the third month in a row that the US annual inflation rate has hovered above 6% – well above the 2% target of policymakers. Food, electricity and shelter are the biggest factors driving up the cost of living. Housing costs were up 4.1% year-on-year, while the cost of groceries rose 6.5% – compared to a 1.5% annual average over the past ten years.
Over a 12-month period energy costs are up by nearly 30% and have returned to their upward trend in recent days. But even if volatile items such as food and energy are stripped out, the index still rose by 6%, the highest level for the so-called core rate in 40 years.
Economists had been expecting the rate to rise to a new multi-decade high, but the 7.5% figure was even higher than they anticipated.
A recent survey by the insurance company Allianz Life found that an increasing number of Americans are worried about how much things cost.
Two-thirds of Americans (67%) said they were worried about the rising cost of living in 2021, an 8-point increase from the three in five people who said the same thing in 2020. The number of Americans who reported worrying about health-care costs also increased, up from 65% to 71%.
The Asian exception
Asia is the only continent not experiencing the sharp price rises seen elsewhere. Across much of Asia, price rises are subdued.
In China, the consumer price index is up by 1.5% compared with a year ago, while in Japan, as usual, inflation is roughly zero. China is the world’s largest exporter of goods and a critical link in global supply chains.
In Australia, the headline CPI may be up by 3%, but the underlying inflation of 2.1% is towards the bottom of the central bank’s target range. Only two big emerging markets in Asia have inflation running above 5% – Sri Lanka and Pakistan – unlike the many in Europe and South America.
Seen from Tokyo, Beijing or Jakarta, the global surge in inflation does not look global at all. This is true even though Asia imports much of its energy and has suffered the same jump in prices for oil, gas, coal and other commodities as everywhere else in the world.
The reason Asia’s inflation is mild and not severe comes down to one simple factor: it handled the COVID-19 pandemic better than the rest of the world.
Across most of the region, countries managed to avoid compulsory lockdowns altogether (South Korea), limit them in scope and duration (China and Taiwan), or delay such measures until deep into 2021 when vaccines were becoming available (New Zealand). The consequences of this relative success are now playing out in several ways.
On the demand side of the economy, Asia experienced fewer of the dramatic swings in consumption from services to goods and back again that marked the experience of the United States and Europe, as they went into lockdown and came back out again.
If you were never locked up at home, you never felt the need to buy a treadmill, a new television and enough lumber to deck the backyard. If you could keep up regular haircuts, dental checks and drinks with friends meanwhile, you had no need to rush out to the hairdresser, the dentist or the nearest bar when the economy reopened.
Japanese firms have so far largely absorbed rising costs. They are afraid that passing the increase along to consumers through higher prices will sap household spending.
Japan reported in September that consumer prices rose by 0.1%, the first uptick in 18 months.
Additional reporting from BBC Business, CTV Canada, Financial Times, Reuters, thisismoney.co.uk.
The writer is the editor of the Finder newspaper, based in Accra. This article is an edited version of a piece published in today’s edition of the paper.