EconoMonitor

The Wilder View

Chilling economic charts: inflation

Gross domestic product across the Organisation for Economic Co-Operation and Development (OECD) countries fell 1.5% in the fourth quarter of 2008, following an 0.2% contraction in the third quarter of 2008. There are 30 membercountries of the OECD, and according to the two consecutive quarters of negative economic growth definition, the OECD is in recession.

In continuing the series of really scary charts, which I have re-named chilling economic charts, I present what the world economic crash – of course, initiated here in the US of A – has done to global inflation rates. End result: the world recession is slashing inflation across the globe.

The West (or at least a proxy of it) is seeing disinflation (falling inflation) at alarming rates

western_chart.png

This chart illustrates annual inflation rates across key Western economies through January 2009 if available. Across these economies (regions), annual inflation has been slashed an average of 1.6% in just one year to 1.3%, from December 2007 to December 2008.

Asia is not immune to the drag on inflation

asia_chart.png

This chart illustrates annual inflation rates across several Asian economies through January 2009. Annual inflation in these economies has been dragged down an average of 0.4% to 5.1% in one year, December 2007 to December 2008.

Emerging Europe is contracting and bringing inflation with it emerging_europe_chart.png

This chart illustrates annual inflation rates across several several emerging European countries through January 2009 – all members of the European Union. On average the six economies experienced an average 2.4% drag on inflation to 6.1% in one year, December 2007 to December 2008.

Iceland is the opposite – inflation surgediceland_chart.png

This chart illustrates Iceland’s annual inflation rate through February 2009. As you can see, inflation has surged almost 14% since 2007 to 17.6% in February. Iceland imports an average of 41% of its total GDP from other countries; and therefore, import prices drive the CPI. As a comparison, U.S. imports are an average of around 18% of GDP over the last year.

In 2007 and into 2008, energy prices were rising quickly, driving import prices upward. But recently, Iceland’s banking crisis is coupled with a currency crisis. In January, Iceland’s currency, the Krona, had 71% over the year on a narrow trade-weighted basis. This had the undesirable effect of driving up import prices, and inflation spiked.

Statistics Iceland will not release its fourth quarter 2008 GDP report in March. However, but the most likely catalyst of the disinflation, 1% from January to February, is a severe contraction in economic growth. Iceland’s got a lot of economic problems on its horizon.

So there you have it. Around the world (mostly), GDP is falling precipitously, and dragging with it, inflation rates. In the overly indebted economies (i.e., that of yours truly), this could present a real problem if deflation – falling prices – is persistent and broad-based, making servicing debt payments more difficult.

Wouldn’t it be nice to see some positive economic news? If the answer to that question is yes, then you should visit this site, The Good News Economist.


Originally published at the News N Economics blog and reproduced here with the author’s permission.

One Response to “Chilling economic charts: inflation”

AnonymousFebruary 28th, 2009 at 2:28 am

Can we infer the implications for the UK consumer and investor?Can you expect to see an Iceland type situation in coming months from imported inflation either in selected markets or universally. There are already potential hikes in japanese TVs and hi fi on the way.What would this mean for aset prices – houses in particular, and interest rates? Is tehre experience in Iceland to predict?Does this mean an end to falling house prices and the attractiveness of borrowing as a defensive move to protect wealth held on deposit in sterling?

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