The global economic has seen a slowdown activity especially in past two years due to the COVID-19 pandemic. Countries have issued stimulus measures, which included low interest rates and large-scale government spending, that led to an increase in the money supply and the potential of inflation. Supply chain disruptions caused by the pandemic eventually prompted increasing costs for goods and services, which also contributed to inflation.
Before countries managed to recover from the economic slowdown, Russia President Vladimir Putin invaded Ukraine on February 24, 2022. This invasion has worsened the economic situation worldwide due to rising energy costs.
“This has caused very high inflation in many countries, this is the worst in the last 40 years,” Finance Minister Sri Mulyani Indrawati said in December 2022.
The World Bank’s latest Global Economic Prospects report says the global growth is slowing sharply due to elevated inflation, higher interest rates, reduced investment, and disruptions caused by Russia’s invasion of Ukraine. The global economy is projected to grow by 1.7% in 2023 and 2.7% in 2024. The sharp downturn in growth is expected to be widespread, with forecasts in 2023 revised down for 95% of advanced economies and nearly 70% of emerging market and developing economies.
IMF World Economic Outlook 2022
Every year, the International Monetary Fund (IMF) makes economic growth projections from various countries, including inflation for the current year and the next year, as one of the economic indicators. IMF Managing Director Kristalina Georgieva has made a statement at the closing of the 2022 IMF Annual Meetings in Washington D.C., requesting its 190 member countries to prepare for the “severe storm” of the global economic crisis that is just around the corner.
According to the IMF’s World Economic Outlook (WEO) in October 2022, there are 5 countries that have the highest inflation rate in the world:
- Zimbabwe
Zimbabwe is a country with the highest inflation in the world of 284.9% (year-on-year/yoy) in October 2022. The inflation rate increased from 98.5% in 2021.
It worsened amid high inflation and unemployment due to lack of food and energy sources from the outbreak of war between Russia and Ukraine and exacerbated by bad government policies and corruption.
- Venezuela
With the highest inflation rate of 210% (year-on-year/yoy) in October 2022, inflation rate in the country drastically decreased from the previous year of 690%.
It happened due to the government’s inability to manage state finances such as the costs of various programs for the welfare of its people. This resulted in large expenditures of funds as the government continued to print large amounts of money and borrow more money from China and Russia.
- Lebanon
Lebanon’s annual inflation rate increased to 162.47% in October 2022. It was caused by increasing prices for a number of elements such as food and beverages, housing and equipment, transportation, home appliances, and health.
- Sudan
Based on data, Sudan’s annual inflation rate reached 154.9% (year-on-year/yoy) in October 2022. It decreased compared to the previous year, which was 359.1%. The political turmoil in the country as well as the COVID-19 pandemic added to the reason.
- Republic of Turkiye
Turkey’s annual inflation rate increased to 85.51% in October 2022, the highest since 1997, due to the interest rate cut by 500 basis points. The exchange rate of the Turkish lira has slumped amid soaring food and energy prices on the global markets and the frequent replacement of the Governor of the Central Bank.
2023 world inflation rate projection + solutions
Global inflation forecast rises from 4.7% in 2021 to 8.8% in 2022 but to decline to 6.5% in 2023 and to 4.1% by 2024 due to the cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic. These factors make a huge impact in the projections of the world’s inflation.
According to Trading Economics, the 2023 inflation rate projections for Zimbabwe, Venezuela, Lebanon, Sudan, and Republic of Turkiye would look like these:
In order for these 5 countries, as well as other countries, to survive the 2023 recession, their monetary policy should remain on course to restore price stability. Meanwhile the fiscal policy should aim to relieve the cost-of-living pressures while remain sufficiently tight in line with the monetary policy.
Structural reforms can help fight inflation by increasing productivity and relieving supply restraints, while multilateral cooperation is required to advance the green energy transition and avoid dissolution.
