Inflation is sometimes defined as a universal rise in prices across an entire economy. Yet inflation’s effects are hardly ever universal.
Across the emerging world, inflation is a growing cause of concern. In China, the biggest emerging market of all, consumer inflation at 4.4 per cent has sent party officials scrambling for policies to rein in price rises. Other developing countries are also feeling uncomfortably inflated by the hot money pushing up their currencies or flooding their economies. Capital controls, and the prospect of policy tightening or even price controls, are making investors nervous.
The world as a whole, however, is hardly at risk from inflation. In the eurozone, Japan and the US – which make up more than half of the world economy – overall price levels struggle to rise at all. Many individual sector prices are falling. US consumer prices excluding food and energy rose at a puny 0.6 per cent over the last year – the lowest rate in the 53 years the measure has been collected. Prices continue to slip in Japan. Only in the euro area is inflation edging up a little, but it remains below 2 per cent, and less in the core economies that have relatively fast growth.