Which countries will have the highest and lowest inflation in 2017?

Global inflation has been on an upward trend recently, hitting a multi-year high of 4.1% in January. The increase stemmed mainly from higher commodity prices, particularly energy commodities such as crude oil and its derivatives, which caused inflation to hit multi-year highs in many major economies.

Rising inflation is limiting space for the continuation of monetary policy easing in some economies and has led analysts to speculate that the ECB could announce a tapering of its bond buying program this year. In addition, the expected tightening cycle in the U.S. is likely to put pressure on emerging market currencies and has caused a number of central banks to hold interest rates unchanged to prevent capital outflows.

Global inflation came in at 3.5% in 2016, the highest result since 2012. While low commodity prices kept inflation contained in advanced economies, economic imbalances fueled price pressures in emerging markets. The infographic below shows the top 10 economies with the highest and lowest inflation around the world. 

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EURO AREA | Inflation soars to four-year high in January

Harmonized inflation came in at 1.8% in January, above December’s 1.1% and marking the highest reading since February 2013. Higher energy prices have caused inflation to exit what European Central Bank President Mario Draghi has called the “danger zone” of below 1.0%, easing concerns that the euro area was stuck in a deflationary context. Divergent trends in price pressures across countries have ramped up debate over how the ECB should proceed regarding its monetary policy program and some analysts have begun to call for a tapering of the bond buying program.

Many of our analysts raised their inflation projections up a notch this month and the Consensus Forecast now foresee prices growing annually at an average rate of 1.5% this year, after a meagre 0.2% in 2016. The higher print will be driven by the diminished impact of low energy prices and reduced economic slack. In 2018, inflation is seen holding steady at 1.5%.

ASEAN | Inflation rises in January

Preliminary data show that inflation in ASEAN increased slightly from 2.3% in December to 2.5% in January. The result was driven primarily by higher price pressures in Indonesia—the region’s largest economy. Despite generally moderate price pressures, central banks in the region have found that their hands are tied, with little space to ease monetary conditions as the U.S. Federal Reserve continues on a tightening cycle. The central banks of Indonesia, the Philippines and Thailand central banks kept their monetary policies unchanged in February.

Our panelists see price pressures picking up in 2017, after tepid inflation of 2.3% last year. Our panel sees inflation averaging 3.2% in 2017, which is unchanged from last month’s forecast. In 2018, our panel sees inflation of 3.4%.

EAST & SOUTH ASIA | Inflation hits nine-month high in January

Inflation in East and South Asia accelerated in January to the fastest rate since April 2016 due to higher prices for commodities and the Lunar New Year holidays, which boosted consumption and led to an increase in prices. Inflation rose from 2.3% in December 2016 to 2.6% in January. The reading reflected higher inflation readings in most countries in the region, including China, Korea and Taiwan. On the other hand, inflation steadied in Pakistan, while price pressures moderated in India.

This year, inflationary pressures will be higher compared to those from 2016 mainly due to a gradual increase in commodity prices. Panelists expect inflation in East and South Asia to rise from 2.4% in 2016 to 2.7% this year, which is unchanged from last month’s estimate. For 2018, our panel of experts expects regional inflation to rise to 2.8%. 

CENTRAL & EASTERN EUROPE | Price pressures jump in December

According to an estimate produced by FocusEconomics, inflation rose to the highest level since October 2013 in December. Inflation in the CEE region ticked up from November’s 0.3% to 0.9%. All of the economies other than Romania recorded positive price pressures, as the effect of low oil prices wanes.

Price pressures are expected to increase this year after a 0.3% fall in consumer prices in 2016. The FocusEconomics panel sees inflation of 1.7% this year, which is up 0.2 percentage points from last month’s projection. This month’s 2017 outlook reflected upward revisions to inflation forecasts for nine countries in the region, including the Czech Republic and Poland. In 2018, inflation is expected to rise slightly to 2.1%. 

CIS | Inflation is expected to fall further in 2017 

Inflation in the CIS economy fell again in December. According to our analysts’ preliminary Consensus estimate, it ended 2016 at 6.0%, substantially lower than 2015’s 12.5%. The sharp drop in 2016 stemmed mainly from the easing of inflationary pressures caused by the devaluation of some of the region’s currencies, a negative output gap and relatively low commodity prices observed in 2016 compared to the highs in previous years.

Inflation in the CIS region is expected to continue falling this year, although at a more moderate pace. Economists see most currencies remaining stable, despite expectations of some volatility in the global financial markets, associated with expected interest rate increases in the U.S. The analysts we surveyed forecast inflation at 5.3% in 2017, which was cut by 0.2 percentage points from last month’s projection. Due to these inflation expectations, central banks across the region are expected to ease last year’s tight monetary policies. Going forward, inflation is projected to fall further in 2018, when it is seen ending the year at 4.9%.

SOUTH-EASTERN EUROPE | Inflation nears one-year high mainly due to higher inflationary pressures in Turkey 

Inflation in the South-Eastern Europe region jumped from 3.9% in November to 5.1% in December, which marked the highest reading in 11 months. The figure reflected higher annual variation in consumer prices in nearly all countries, including Turkey—the largest economy in the region. The annual variation in consumer prices in December was negative in 4 of the 12 countries surveyed. Preliminary data show that inflation accelerated again in January.  

This month, our panelists upgraded their 2017 inflation forecast from the previous month’s 5.2% to 5.5%. This reflects that upgraded estimates for six countries more than compensated for the downgrade in only one country. For 2018, the panel expects inflation to decrease slightly to 5.1%. 

MENA | Inflation jumps to an over one-year high in November

Inflation in the MENA region continued to rise in December, mainly due to higher readings among oil-importing countries. Inflation rose from 5.0% in November to 5.3% in December, the highest rate since June 2015. Far from being homogeneous, December’s print reflects divergent trends within the region. Inflation is declining among most oil-exporting nations, particularly in GCC countries, as the base effect related to subsidy removals at the start of 2016 has vanished and the strong U.S. dollar is making imports cheaper for those countries with a peg to the greenback. Conversely, higher energy prices due to the recent rise in commodity prices is pushing up prices among oil-importing economies. Moreover, in Egypt, the weakening of the pound caused inflation to hit a multi-year high in December.

FocusEconomics panelists expect inflation for the region to be 4.9% this year, which is up 0.1 percentage points from last month’s estimate. The panel sees inflation at 4.8% in 2018.

LATIN AMERICA | Inflation expected to moderate in 2017

Inflation in Latin America continued to creep up in 2016, but divergent paths were observed across the region. In South America, inflation rates remain elevated, reflecting weakness in most of the relevant currencies and high food costs as a result of adverse weather conditions. Accordingly, South American central banks maintained a tight monetary policy for most of 2016. Meanwhile, in Central America inflation was more benign, as the majority of Central American and Caribbean economies are oil importers and they benefited from low oil prices. Meanwhile, in Mexico inflationary pressures remained contained in most of 2016, but a severe depreciation of the Mexican peso following Trump’s win of the presidential election pushed up inflation toward the end of 2016.

Inflation in the region as a whole ended 2016 at 28.2%, which marked the highest rate in two decades. However, if the exceptionally high inflation in Venezuela is not taken into account, Latin America’s inflation ended last year at 8.9%.

Considering that Venezuela is experiencing an episode of near hyperinflation, inflation in Latin America is projected to end this year at 29.1%. Without considering the effects of hyperinflation in Venezuela, Latin America’s inflation is expected to fall to 6.5% this year. Going forward, analysts project regional inflation (ex-Venezuela) to fall further to 5.4%, while if we keep Venezuela in the regional aggregate, inflation in the region is seen at 25.0%.

CENTRAL AMERICA | Inflation accelerates in December      

Inflation rose from 2015’s multi-decade low of 1.7% to 2.0% in 2016. The print reflected higher inflation in most countries in the region, including Belize, Costa Rica, Guatemala, Haiti and Panama. Conversely, inflation decelerated in the Dominican Republic, Jamaica and Trinidad and Tobago. Moreover, El Salvador experienced a decline in consumer prices in 2016.

Our Consensus Forecast panelists left their inflation estimates for 2017 unchanged at 3.1% for the third month in a row. For 2018, inflation is expected to increase to 3.4%. 

SUB-SAHARAN AFRICA | Inflation shows signs of moderation at the start of 2017 

Due to lower commodity prices, high current account deficits and falling capital inflows put pressure on international reserves and exchange rates across Sub-Saharan Africa last year. Consequently, inflation rose rapidly and, according to our estimates, it averaged 12.5% in 2016, marking the highest level in eight years. Although still high, inflation in the region is showing signs of moderation. Preliminary data showed that inflation edged down from 14.1% in December to 13.9% in January, reflecting mainly a stabilization in regional exchange rates due to the gradual recovery in commodity prices seen at the end of 2016 and beginning of this year.

As commodity prices are expected to continue rising this year, exchange rates should stabilize or strengthen. Consequently, the analysts we surveyed this month expect regional inflation to fall to an average rate of 11.6% in 2017, which is up 0.2 percentage points from the previous month’s estimate. Going forward, inflationary pressures should continue to recede and inflation is projected to average 9.3% in 2018. 

Date: March 6, 2017