The Economist magazine has recently published its specific inflation indicator of the developed countries. This indicator encapsulates five different measures, core inflation, unit labor cost, inflation dispersion, inflation expectations and Google-search behavior. The inflation dispersion is the proportion of goods and services which experience more than 2 percent annual raise in the price.
The result is better than the November measurement. However, the linguistic divide between English speaking countries and non-speaking countries is becoming apparent. Countries in Europe and East Asia are performing better, while English speaking countries are still in the middle of the battle for inflation.
A few factors may explain the differences. One factor is the fiscal stimulus during Covid time. In Anglosphere countries the fiscal package was almost 40 percent bigger than elsewhere. The biggest paychecks are still boosting the local demand, which in turn is reflected in the higher inflation rate.
The other contributing effect is immigration. Britain, Canada and Australia have a record of new immigrants in the country. New entrants boost the local demand, especially the demand for housing. In English speaking countries the cost of renting a house rose 8 percent last year. Whereas, in other developed countries the rent rose only 5 percent.
History may also explain why English speaking countries are experiencing more resilient inflation. During the 2010s, southern European countries and Asian countries experienced softer inflation than English speaking countries. This may explain why people are expecting a higher inflation rate. In the United States, the public still believes that over the next 12 months, the prices would rise 5.3 percent. This is much more than the Federal Reserve 2 percent annual inflation target.Â
Source: Economist
