Markets in a Minute
Mapped: Inflation Forecasts by Country in 2022
This infographic is available as a poster.
This infographic is available as a poster.
Mapped: Inflation Forecasts by Country in 2022
What will inflation look like in 2022?
Today, this is a question on many investors’ minds. Across several countries, inflation has hit its highest level in decades. Supply shortages and massive monetary stimulus have contributed to increasing consumer prices. Asset prices, including houses, have also risen significantly.
In this Markets in a Minute from New York Life Investments we show inflation by country in 2022 according to IMF projections.
Inflation by Country in 2022
Inflation rates are based on the annual percentage change in average consumer prices. This measures the average level of prices in a country based on a basket of goods and services over a given time period.
Here are forecasted inflation rates for the largest economies worldwide, and how they compare to pre-pandemic levels:
| Inflation Rate, Average Consumer Prices (Annual % Change) | 2019 | 2022 |
|---|---|---|
| 🇺🇸 United States | 1.5% | 3.5% |
| 🇨🇳 China | 2.9% | 1.8% |
| 🇯🇵 Japan | 0.5% | 0.5% |
| 🇩🇪 Germany | 1.4% | 1.5% |
| 🇬🇧 United Kingdom | 1.8% | 2.6% |
| 🇮🇳 India | 4.8% | 4.9% |
| 🇫🇷 France | 1.3% | 1.6% |
| 🇮🇹 Italy | 0.6% | 1.8% |
| 🇨🇦 Canada | 1.9% | 2.6% |
| 🇰🇷 South Korea | 0.4% | 1.6% |
| 🇷🇺 Russia | 4.5% | 4.8% |
| 🇧🇷 Brazil | 3.7% | 5.3% |
| 🇦🇺 Australia | 1.6% | 2.1% |
| 🇪🇸 Spain | 0.7% | 1.6% |
| 🇲🇽 Mexico | 3.6% | 3.8% |
| 🇮🇩 Indonesia | 2.8% | 2.8% |
| 🇮🇷 Iran | 34.6% | 27.5% |
| 🇳🇱 Netherlands | 2.7% | 1.7% |
| 🇸🇦 Saudi Arabia | -2.1% | 2.2% |
| 🇨🇭 Switzerland | 0.4% | 0.6% |
With the highest rate across advanced economies, the U.S. could see inflation at 3.5% in 2022. Over the last two years, the U.S. central bank has doubled the assets on its balance sheet, which stand at roughly 27% of GDP.
Inflation rates tell a different story in China. Rates are forecasted to fall below pre-pandemic levels, reaching 1.8%. In fact, across East Asia, prices have been largely immune to inflationary pressures, but this could change in 2022.
While inflation is rising in Europe, it’s at roughly half the rate as the U.S., with Germany, France, and Italy projected to see inflation rates below 2%. However, the UK is an outlier, with inflation set to reach 2.6%.
What Are the Effects of Inflation?
What is driving inflation around advanced economies?
In the U.S., energy prices rose over 29% between 2020 and 2021. Meanwhile, food costs have increased 6.5%, driven by labor shortages, domestic demand, rising cost of feed and other inputs.
Looking forward, Kraft Heinz, General Mills, Starbucks and several other corporations have announced price hikes in 2022.
| Consumer Price Inflation (Annual % Change 2020-2021) | Energy | Food | All Items |
|---|---|---|---|
| 🇺🇸 United States | 29.3% | 6.5% | 7.0% |
| 🇯🇵 Japan | 16.4% | 2.6% | 0.8% |
| 🇩🇪 Germany | 18.3% | 5.9% | 5.3% |
| 🇬🇧 United Kingdom | 24.5% | 4.2% | 4.8% |
| 🇫🇷 France | 19.6% | 1.4% | 2.8% |
| 🇮🇹 Italy | 29.4% | 2.9% | 3.9% |
| 🇨🇦 Canada | 21.2% | 5.7% | 4.8% |
Source: Refinitiv, OECD
In Japan, businesses are taking a different approach. Instead of input costs passing on to consumers, companies are absorbing the costs to avoid the risk of losing business. For instance, when Kikkoman announced 4-10% increases in 2021, it made national news.
This has been a typical practice for decades amid low growth, stagnant wages, and a deflationary environment.
Highest Inflation by Country in 2022
Venezuela is the highest in the world, with a forecasted 2,000% rise in inflation.
Since October, the central bank has been printing as many as $100 million bolívars per week to help stabilize the exchange rate against the U.S. dollar. Hyperinflation has run rampant since 2017, with U.S oil sanctions adding significant challenges to the economy.
These bans on Venezuelan exports have caused damaging economic impacts and instability.
| Inflation Rate, Average Consumer Prices (Annual % Change) | 2019 | 2022 |
|---|---|---|
| 🇻🇪 Venezuela | 19,906% | 2,000% |
| 🇸🇩 Sudan | 51.0% | 41.8% |
| 🇸🇷 Suriname | 4.4% | 31.7% |
| 🇾🇪 Yemen | 12.0% | 31.5% |
| 🇿🇼 Zimbabwe | 255.3% | 30.7% |
| 🇮🇷 Iran | 34.6% | 27.5% |
| 🇸🇸 South Sudan | 51.2% | 24.0% |
| 🇿🇲 Zambia | 9.2% | 19.2% |
| 🇭🇹 Haiti | 17.3% | 15.5% |
| 🇹🇷 Turkey | 15.2% | 15.4% |
| 🇦🇴 Angola | 17.1% | 14.9% |
| 🇳🇬 Nigeria | 11.4% | 13.3% |
| 🇸🇱 Sierra Leone | 14.8% | 13.3% |
| 🇹🇲 Turkmenistan | 5.1% | 13.0% |
| 🇱🇷 Liberia | 27.0% | 11.8% |
| 🇺🇿 Uzbekistan | 14.5% | 10.9% |
| 🇬🇳 Guinea | 9.5% | 9.9% |
| 🇲🇼 Malawi | 9.4% | 9.0% |
| 🇬🇭 Ghana | 7.1% | 8.8% |
| 🇵🇰 Pakistan | 6.7% | 8.5% |
| 🇧🇾 Belarus | 5.6% | 8.3% |
| 🇱🇾 Libya | 0.2% | 8.0% |
| 🇰🇬 Kyrgyz Republic | 1.1% | 7.8% |
| 🇸🇹 São Tomé and Príncipe | 7.7% | 7.8% |
| 🇩🇿 Algeria | 2.0% | 7.6% |
| 🇲🇳 Mongolia | 7.3% | 7.3% |
| 🇺🇦 Ukraine | 7.9% | 7.1% |
| 🇧🇹 Bhutan | 2.8% | 6.9% |
| 🇲🇺 Mauritius | 0.5% | 6.6% |
| 🇰🇿 Kazakhstan | 5.2% | 6.5% |
| 🇲🇲 Myanmar | 8.6% | 6.5% |
| 🇹🇯 Tajikistan | 7.8% | 6.5% |
| 🇹🇳 Tunisia | 6.7% | 6.5% |
| 🇨🇩 DRC | 4.7% | 6.4% |
| 🇲🇬 Madagascar | 5.6% | 6.4% |
| 🇲🇿 Mozambique | 2.8% | 6.4% |
| 🇪🇬 Egypt | 13.9% | 6.3% |
| 🇬🇲 Gambia | 7.1% | 6.3% |
| 🇯🇲 Jamaica | 3.9% | 6.3% |
| 🇱🇰 Sri Lanka | 4.3% | 6.2% |
| 🇺🇾 Uruguay | 7.9% | 6.1% |
| 🇦🇲 Armenia | 1.4% | 5.8% |
| 🇲🇩 Moldova | 4.3% | 5.8% |
| 🇧🇩 Bangladesh | 5.5% | 5.7% |
| 🇳🇵 Nepal | 4.6% | 5.7% |
| 🇬🇪 Georgia | 4.9% | 5.4% |
| 🇧🇷 Brazil | 3.7% | 5.3% |
| 🇱🇸 Lesotho | 5.2% | 5.3% |
| 🇧🇼 Botswana | 2.7% | 5.0% |
| World | 3.5% | 3.8% |
Like Venezuela, Iran faces high inflation, compounded by 960 U.S. sanctions. In addition, the country has been cut off from the international banking messaging system, SWIFT, to increase pressure on nuclear negotiations.
What this means is that Iranian banks can’t pay for exports or receive payment for imports.
Lowest Inflation by Country in 2022
On the other hand, Saint Kitts and Nevis is the only country projected to have negative inflation in 2022, at -0.5%. Not only that, disinflation is projected to increase from pre-pandemics levels.
| Inflation Rate, Average Consumer Prices (Annual % Change) | 2019 | 2022 |
|---|---|---|
| 🇰🇳 Saint Kitts and Nevis | -0.3% | -0.5% |
| 🇹🇹 Trinidad and Tobago | 1.0% | 0.0% |
| 🇬🇷 Greece | 0.5% | 0.4% |
| 🇯🇵 Japan | 0.5% | 0.5% |
| 🇬🇩 Grenada | 0.6% | 0.6% |
| 🇨🇭 Switzerland | 0.4% | 0.6% |
| 🇸🇲 San Marino | 1.0% | 0.9% |
| 🇨🇾 Cyprus | 0.6% | 1.0% |
| 🇵🇼 Palau | 0.6% | 1.0% |
| 🇰🇲 Comoros | 3.7% | 1.2% |
| 🇲🇦 Morocco | 0.2% | 1.2% |
| 🇵🇹 Portugal | 0.3% | 1.3% |
| 🇹🇭 Thailand | 0.7% | 1.3% |
| 🇱🇺 Luxembourg | 1.7% | 1.4% |
| 🇦🇩 Andorra | 0.7% | 1.5% |
| 🇧🇳 Brunei Darussalam | -0.4% | 1.5% |
| 🇨🇷 Costa Rica | 2.1% | 1.5% |
| 🇩🇪 Germany | 1.4% | 1.5% |
| 🇲🇪 Montenegro | 0.4% | 1.5% |
| 🇸🇬 Singapore | 0.6% | 1.5% |
| 🇹🇼 Taiwan | 0.5% | 1.5% |
| 🇨🇻 Cabo Verde | 1.1% | 1.6% |
| 🇩🇰 Denmark | 0.7% | 1.6% |
| 🇫🇮 Finland | 1.1% | 1.6% |
| 🇫🇷 France | 1.3% | 1.6% |
| 🇰🇷 South Korea | 0.4% | 1.6% |
| 🇲🇭 Marshall Islands | -0.5% | 1.6% |
| 🇪🇸 Spain | 0.7% | 1.6% |
| 🇸🇪 Sweden | 1.7% | 1.6% |
| 🇦🇼 Aruba | 3.9% | 1.7% |
| 🇫🇯 Fiji | 1.8% | 1.7% |
| 🇳🇱 Netherlands | 2.7% | 1.7% |
| 🇧🇦 Bosnia and Herzegovina | 0.6% | 1.8% |
| 🇨🇳 China | 2.9% | 1.8% |
| 🇮🇱 Israel | 0.8% | 1.8% |
| 🇮🇹 Italy | 0.6% | 1.8% |
| 🇲🇹 Malta | 1.5% | 1.8% |
| 🇸🇮 Slovenia | 1.6% | 1.8% |
| 🇧🇬 Bulgaria | 2.5% | 1.9% |
| 🇮🇪 Ireland | 0.9% | 1.9% |
| 🇵🇷 Puerto Rico | 0.1% | 1.9% |
| 🇦🇬 Antigua and Barbuda | 1.4% | 2.0% |
| 🇧🇯 Benin | -0.9% | 2.0% |
| 🇨🇲 Cameroon | 2.5% | 2.0% |
| 🇭🇷 Croatia | 0.8% | 2.0% |
| 🇩🇯 Djibouti | 3.3% | 2.0% |
| 🇩🇲 Dominica | 1.5% | 2.0% |
| 🇬🇦 Gabon | 2.0% | 2.0% |
| 🇬🇼 Guinea-Bissau | 0.3% | 2.0% |
| 🇳🇴 Norway | 2.2% | 2.0% |
Greece, Japan, and Switzerland all are forecasted to see inflation fall below 1%. Suppressed demand and low national economic output are factors behind low inflation rates in Greece, which has led to downward pressures on inflation.
The Future of Inflation Worldwide
A combination of factors unique to COVID-19 have pushed inflation to multi-decade highs. But will inflation eventually fade over time?
For many countries, the IMF forecasts that it will. By 2025, U.S. inflation is projected to reach 2.5%, while many advanced countries could see rates at or below the 2% target often set by central banks.
| Inflation Rate, Average Consumer Prices (Annual % Change) | 2022 | 2025E |
|---|---|---|
| 🇺🇸 United States | 3.5% | 2.5% |
| 🇨🇳 China | 1.8% | 2.0% |
| 🇯🇵 Japan | 0.5% | 1.0% |
| 🇩🇪 Germany | 1.5% | 1.8% |
| 🇬🇧 United Kingdom | 2.6% | 2.0% |
| 🇮🇳 India | 4.9% | 4.0% |
| 🇫🇷 France | 1.6% | 1.2% |
| 🇮🇹 Italy | 1.8% | 1.3% |
| 🇨🇦 Canada | 2.6% | 2.1% |
| 🇰🇷 South Korea | 1.6% | 2.0% |
| 🇷🇺 Russia | 4.8% | 4.0% |
| 🇧🇷 Brazil | 5.3% | 3.1% |
| 🇦🇺 Australia | 2.1% | 2.4% |
| 🇪🇸 Spain | 1.6% | 1.7% |
| 🇲🇽 Mexico | 3.8% | 3.0% |
| 🇮🇩 Indonesia | 2.8% | 3.0% |
| 🇮🇷 Iran | 27.5% | 25.0% |
| 🇳🇱 Netherlands | 1.7% | 1.9% |
| 🇸🇦 Saudi Arabia | 2.2% | 2.0% |
| 🇨🇭 Switzerland | 0.6% | 1.0% |
Structural forces that began to take hold in the 1980s have led to declining inflation rates for many years. These forces are not likely going away. Globalization is unlikely to stop and slowing energy demand may cause energy prices to level off.
In addition, as vaccination rates increase and more people enter the workforce, spending could move towards services, lessening the price pressures on goods. Central banks around the world have already started tightening monetary policy and stimulus measures, such as tapering bond purchases, which could help lower inflation.
As countries brace for higher inflation in the short-term, the long-term view may return to pre-pandemic trends.
Markets in a Minute
Charted: Unemployment and Recessions Over 70 Years
Despite market uncertainty, U.S. unemployment is low, at 3.7%. In this infographic, we show unemployment and recessions since 1948.
This infographic is available as a poster.
Charting Unemployment and Recessions Over 70 Years
As of August 2022, the U.S. unemployment rate sits at 3.7%, below its 74-year average of 5.5%.
Why does this matter today? Employment factors heavily into whether economists determine the country is in a recession. In fact, in the last several decades, employment-related factors have some of the heaviest weightings when a recession determination is made.
In this Markets in a Minute from New York Life Investments, we look at unemployment and recessions since 1948.
Why Is the Unemployment Rate Important?
To start, let’s look at how unemployment affects the economy.
During low unemployment and a strong labor market, wages often increase. This is a central concern to the Federal Reserve as higher wages could spur more spending and notch up inflation.
To curb inflation, the central bank may increase interest rates. As the economy begins to feel the effects of rising interest rates, it may fall into a recession as the cost of capital increases and consumer spending slows.
Who Determines It’s a Recession?
A committee of eight economists at the National Bureau of Economic Research (NBER) in Massachusetts make the call, although often several months after a recession has happened. As a result, employment data often acts as a lagging indicator.
This committee of academics looks at a number of variables beyond two consecutive quarters of negative GDP growth. Other factors include:
- Nonfarm payroll employment
- Real personal income less transfers
- Real personal consumption expenditures
- Industrial production
- Wholesale retail sales adjusted for price changes
- Real GDP
A widespread decline in economic activity across the economy, as opposed to just one sector, is also considered.
Unemployment and Recessions Over History
Over the last 12 business cycles, the unemployment rate averaged 4.7% at the peak and 8.1% during the trough. The below table shows how the unemployment rate changed over various U.S. business cycles, with data from NBER:
| Peak Month | Unemployment Rate | Trough Month | Unemployment Rate |
|---|---|---|---|
| Nov 1948 | 3.8% | Oct 1949 | 7.9% |
| Jul 1953 | 2.6% | May 1954 | 5.9% |
| Aug 1957 | 4.1% | Apr 1958 | 7.4% |
| Apr 1960 | 5.2% | Feb 1961 | 6.9% |
| Dec 1969 | 3.5% | Nov 1970 | 5.9% |
| Nov 1973 | 4.8% | Mar 1975 | 8.6% |
| Jan 1980 | 6.3% | Jul 1980 | 7.8% |
| Jul 1981 | 7.2% | Nov 1982 | 10.8% |
| Jul 1990 | 5.5% | Mar 1991 | 6.8% |
| Mar 2001 | 4.3% | Nov 2001 | 5.5% |
| Dec 2007 | 5.0% | Jun 2009 | 9.5% |
| Feb 2020 | 3.5% | Apr 2020 | 14.7% |
In 1953, following post-WWII expansion, the unemployment rate fell to 2.6%, near record lows.
During this time, the economy faced strong consumer demand and high inflation after a period of prolonged low interest rates. To combat price pressures, the Federal Reserve increased interest rates in 1954, and the economy fell into recession. By May 1954, the unemployment rate more than doubled.
In 1981, the unemployment rate was high during both the peak of the cycle (7.2%) and the trough (10.8%) by late 1982. This marked the end of the 1970s stagflationary era, characterized by slow growth and high unemployment.
More recently, at the peak of the business cycle in 2020 the unemployment rate stood at 3.5%, closer to levels seen today.
Unemployment Today: A Double-Edged Sword
As of July 2022, the number of job vacancies is at 11.2 million, near record highs.
To reign in the inflationary pressures of the current job market—which saw year-over-year wage increases of 5.2% in both July and August—the Federal Reserve may take a more aggressive stance on interest rate hikes.
The good news is that labor force participation is increasing. As of August, labor force participation was within 1% of pre-pandemic levels, offering relief to the labor market supply. Higher labor force participation could lessen wage growth without unemployment levels having to rise. Since more people are competing for jobs, there is less leverage for salary negotiation.
Going further, one study shows that since the Great Financial Crisis, labor market participation has had a greater influence on wage growth than unemployment levels or job openings.
Against these opposing forces of higher job vacancies and higher labor market participation, the outlook for unemployment, along with its wider effects on the economy, remain unclear.
Markets in a Minute
How Closely Related Are Historical Mortgage Rates and Housing Prices?
With mortgage rates climbing, could housing prices drop? We explore the relationship between historical mortgage rates and house prices.
This infographic is available as a poster.
Are Historical Mortgage Rates and House Prices Related?
Mortgage rates are rising at their fastest pace in at least 30 years. As mortgage rates climb, it becomes more expensive to finance a home purchase. This leaves many homebuyers with lower budgets. Could house prices drop as a result?
In this Markets in a Minute from New York Life Investments, we explore the relationship between historical mortgage rates and housing prices over the last 30 years. It’s the last in a three-part series on house prices.
Historical Mortgage Rates vs Housing Prices
To compare trends in historical mortgage rates and housing prices over time, we calculated year-over-year percentage changes. We used monthly data spanning from January 1992 to June 2022. Here’s a summary of movements over that timeframe.
| Scenario | # of Months |
|---|---|
| Mortgage Rate Decline, House Price Growth | 193 |
| Mortgage Rate Growth, House Price Growth | 117 |
| Mortgage Rate Decline, House Price Decline | 49 |
| Mortgage Rate Growth, House Price Decline | 6 |
November 2006 has been excluded from the above tally as year-over-year mortgage rate growth was 0.0% at that time.
Mortgage rates and house prices have a weak positive correlation of 0.26. This means that when mortgage rates increase, house prices typically also increase. What could be contributing to this trend? Mortgage rate increases are associated with periods when the Federal Reserve is raising its policy rate in response to inflation that is higher than desired. Often, this coincides with strong economic growth, low unemployment, and rising wages, which can all strengthen home prices.
Over the last 30 years, it was quite rare for mortgage rates to rise while house prices simultaneously dropped. This only occurred in the early stages of the Global Financial Crisis and during the recovery.
| Date | Mortgage Rate YoY Change | House Price YoY Change |
|---|---|---|
| Aug 2007 | 0.8% | -0.6% |
| Oct 2007 | 1.1% | -1.9% |
| Jan 2010 | 1.6% | -2.9% |
| Apr 2010 | 6.3% | -1.5% |
| May 2010 | 3.3% | -1.4% |
| Jul 2011 | 0.4% | -3.8% |
While mortgage rates saw some upward movement in the wake of the Global Financial Crisis, it took the housing market longer to recover. In fact, housing prices didn’t see a positive year-over-year change until March 2012.
Is There a Lag Effect?
A change in mortgage rates may not be immediately reflected in housing prices. To test whether there was a lag effect, we also explored the relationship between historical mortgage rates and housing prices two years later.* For instance, we compared the annual percentage change in mortgage rates in 2020 to housing price growth in 2022.
Here’s what the data looked like with this two year lag of housing price growth.
| Scenario | # of Months |
|---|---|
| Mortgage Rate Decline, House Price Growth | 190 |
| Mortgage Rate Growth, House Price Growth | 97 |
| Mortgage Rate Decline, House Price Decline | 37 |
| Mortgage Rate Growth, House Price Decline | 17 |
*We tested for a lag effect using house prices six months later, one year later, two years later, and three years later. The data using house prices 6 months later and three years later revealed no correlation between mortgage rates and housing prices. The data using house prices one year later revealed the same correlation as using house price data from two years later. November 2006 has been excluded from the above tally as year-over-year mortgage rate growth was 0.0% at that time.
The pattern was similar, albeit with a slightly negative correlation of -0.15. In other words, mortgage rates and house prices tended to move in opposite directions.
For example, this occurred in 2020 when mortgage rates were dropping and the Federal Reserve had not yet begun to raise its policy rate. Two years later in 2022, house prices were seeing record high levels of growth amid strong demand and low supply.
Compared to our first analysis above, there were also more instances where mortgage rates increased and house prices decreased. This activity all related to mortgage rates rising from 2005-2007 amid inflation concerns, with housing prices crashing in the following years due to subprime mortgages and the Global Financial Crisis.
Historical Mortgage Rates: One Piece of the Puzzle
Could the current rising mortgage rates cause housing prices to drop? In the last 30 years, there is no historical precedent for this apart from the Global Financial Crisis. Of course, subprime mortgages—mortgages to people with impaired credit scores—contributed to the housing market collapse at that time.
While researchers believe it’s unlikely housing price growth will turn negative, the pace of growth is slowing down. We can see this in the below chart showing trends between historical mortgage rates and housing prices over time.
Historically, a slowdown in house price growth has occurred when mortgage rates increase rapidly. Since 1992, there have been four instances when mortgage rates rose over 20% year-over-year for more than two months in a row. Each of them has been accompanied by a deceleration in house price growth.
| Time Period | House Price YoY Change at Start | House Price YoY Change at End |
|---|---|---|
| Sep 1994-Feb 1995 | 3.1% | 2.9% |
| Aug 2013-May 2014 | 7.2% | 4.7% |
| Sep 2018-Dec 2018 | 5.8% | 5.5% |
| Jan 2022-Jun 2022 | 18.4% | 16.2% |
Note: House price data only available until June 2022 and does not reflect any fluctuations since that time.
In the first half of 2022, house price growth slowed by over two percentage points. However, it’s important to keep in mind that while mortgage rates and affordability can play a role in the housing market, there are other factors at play. The current market is buoyed by high demand as millennials reach their prime home buying years, coupled with a housing supply shortage.
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