Short-term forecast of global inflation

In April 2010 the IMF updated its forecasts for global inflation to an average 3.7% in 2010, (from 2.4% in 2009) compared to the 2.9% projected in October 2009.

The IMF estimates that inflation in most countries will be higher than previous forecasts, reflecting growing confidence about the economic recovery. However, inflation is lower than expected in some countries, such as Ireland and in Eastern Europe, reflecting worries over the recovery and risks such as sovereign debt levels.

Overall outlook

In advanced economies, the IMF projects average inflation to be 1.5% in 2010 compared to the 1.3% that was forecast in January 2010. This reflects the stronger than expected recovery since late 2009 and the parallel rise in prices of commodities, lower than expected numbers of lay-offs (which has prevented wage inflation from falling significantly) and a potential reluctance for firms to lower prices and margins.

In emerging and developing economies, average inflation is expected to be higher than in advanced economies, reflecting the quicker economic and demand growth, strong demand from developing Asia and lower excess capacity than might normally be expected at this stage in the economic cycle. The fund has left its January 2010 forecasts unchanged at an average inflation rate of 6.2% in 2010. In 2011, inflation will be 4.7%, as commodity prices are not expected to increase significantly.

Africa and the Middle East

Annual inflation rates in Africa and the Middle East: 2009-2011

% annual change 2009 2010 2011
Egypt 16.2 12.0 9.5
Nigeria 12.4 11.5 9.5
South Africa 7.1 5.8 5.8
Algeria 5.7 5.5 5.2
Saudi Arabia 5.1 5.2 5.0
Jordan -0.7 5.3 4.6
Kuwait 4.7 4.5 4.0
Tunisia 3.7 4.2 3.5
UAE 1.0 2.2 3.0
Qatar -4.9 1.0 3.0
Israel 3.3 2.3 2.6
Morocco 1.0 2.0 2.6

Source: IMF.

  • Of the major economies, Egypt and Nigeria are expected to have the highest inflation in 2010, at 12.0% and 11.5% respectively, thanks to high population growth, food supply problems and strong industrial and consumer demand. In both countries, inflation will moderate to 9.5% by 2011;
  • The lowest rate is expected to be in Qatar, at 1.0% in 2010, higher than the -4.9% in 2009. The 2009 figure was due to a fall in housing and rental prices as supply increased, and easing food and other consumer prices. The rise in 2010 will be due to higher international food and raw materials prices, as well as the effect of domestic state investment in infrastructure;
  • Inflation in Jordan is expected to rise sharply from -0.7% in 2009 to 5.3% in 2010. The deflation in 2009 was mainly due to lower commodity, fuel and food prices, while the pick-up in 2010 is expected to be caused by rising energy, transport and commodity costs.

Asia Pacific and Australasia

Annual inflation rates in Asia Pacific and Australasia: 2009-2011
% annual change 2009 2010 2011
Vietnam 6.7 12.0 10.3
Pakistan 20.8 11.5 7.5
Kazakhstan 7.3 7.3 6.6
Indonesia 4.8 4.7 5.8
India 10.9 13.2 5.5
Turkmenistan -2.7 5.0 5.4
Philippines 3.2 5.0 4.0
Azerbaijan 1.5 4.7 3.5
South Korea 2.8 2.9 3.0
New Zealand 2.1 2.1 2.5
China -0.7 3.1 2.4
Australia 1.8 2.4 2.4
Malaysia 0.6 2.0 2.1
Singapore 0.2 2.1 1.9
Thailand -0.8 3.2 1.9
Hong Kong 0.5 2.0 1.7
Taiwan -0.9 1.5 1.5
Japan -1.4 -1.4 -0.5

Source: IMF.

  • Japan is expected to experience deflation, with the forecast for 2010 estimated by the IMF at -1.4% compared to -0.8% in October 2009. Japan’s economic situation is downbeat, with real GDP estimated to have shrunk by 5.2% in 2009. Low consumer spending has forced price wars in some sectors, putting downward pressure on inflation;
  • The IMF projects that China will experience relatively moderate inflation. Due to a stronger than expected recovery and higher global commodity prices, average inflation in 2010 is predicted to be 3.1% compared to the 0.6% that was forecast in October 2009. The Chinese government has set a target of keeping inflation under 3% in 2010, although this is unlikely due to ongoing money supply growth;
  • India is now expected to see much higher inflation in 2010. The IMF has raised its forecast from 8.4% to 13.2%, due to a poor harvest and drought in 2009 that increased food prices, but also stronger consumer demand for household products and rising wages due to some labour shortages. The outlook for 2011 is for inflation to moderate to 5.5%;
  • In Pakistan inflation is expected to be lower in 2010 than 2009 when food shortages and instability resulted in inflationary pressures. However, inflation will remain problematic. Inflationary pressures in Vietnam will become stronger in 2010, due to rapid economic growth and domestic demand, devaluation of the national currency and a stimulus package that may create greater money supply.

Eastern Europe

Annual inflation rates in Eastern Europe: 2009-2011
% annual change 2009 2010 2011
Ukraine 15.9 9.2 8.9
Belarus 13.0 7.3 6.2
Russia 11.7 7.0 5.7
Romania 5.6 4.0 3.1
Bulgaria 2.5 2.2 2.9
Croatia 2.4 2.3 2.8
Hungary 4.2 4.3 2.5
Poland 3.5 2.3 2.4
Slovakia 0.9 0.8 2.0
Czech Republic 1.0 1.6 2.0
Estonia -0.1 0.8 1.1
Lithuania 4.2 -1.2 -1.1
Latvia 3.3 -3.7 -2.5

Source: IMF.

  • Inflation in most countries in Eastern Europe is expected to moderate in 2010 compared to 2009, with a few exceptions. The region was one of the worst-affected by the global economic recession and financial crisis;
  • The Baltic states of Latvia and Lithuania experienced deep recessions in 2009, with real GDP expected to contract by 4.0% and 1.6% respectively in 2010. This has fed through to inflation, which is expected to be negative (-3.7% and -1.2% respectively in 2010);
  • The IMF expects that inflation in Russia, the region’s largest economy, will be slightly lower than expected in October 2009. Its forecast for 2010 is 7.0% compared to the previous 9.9%, while in 2011 inflation is expected to fall to 5.7%. This is partly due to the weaker euro, which means lower import costs, as well as due to lower consumer demand and record-low interest rates. A similar trend has been forecast for Belarus and Ukraine – in the latter inflation is now predicted to be 9.2% in 2010 compared to the 10.3% forecast in October 2009, partly due to a deep recession which has reduced output and consumer demand.

The Americas

Annual inflation rates in the Americas: 2009-2011
% annual change 2009 2010 2011
Venezuela 27.1 29.7 33.2
Argentina 6.3 10.1 9.1
Uruguay 7.1 6.2 6.0
Brazil 4.9 5.1 4.6
Mexico 5.3 4.6 3.7
Colombia 4.2 3.5 3.7
Ecuador 5.1 4.0 3.5
Chile 1.7 2.0 3.0
Canada 0.3 1.8 2.0
Peru 2.9 1.5 1.8
USA -0.3 2.1 1.7

Source: IMF.

  • In general, the IMF has raised its 2010 inflation forecast for most major economies in the Americas, given the stronger global economic recovery and the impact of a major economic stimulus package in the USA. US inflation in 2010 is now expected to be 2.1% instead of the 1.7% that the IMF forecast in October 2009. This is partly due to better-than-expected economic growth, as well as continuing low interest rates;
  • An unstable economic situation in Venezuela, along with power shortages and infrastructure problems, as well as reliance on food imports, mean that inflation is expected to be extremely high in 2010, at 29.7%. In January 2010 the government devalued the national currency, which will raise the cost of imports;
  • In Argentina, the IMF has significantly raised its forecast for 2010 inflation, from 5.0% in October 2009 to 10.1%. This is due to higher food prices (especially beef) and wage inflation, as well as high interest rates. In 2011 the IMF expects inflation to ease to 9.1%. It is also thought to be underestimated in official statistics, meaning that local estimates are even higher.

Western Europe

Annual inflation rates in Western Europe: 2009-2011
% annual change 2009 2010 2011
Turkey 6.3 9.7 5.7
Iceland 12.0 6.2 3.8
Sweden 2.2 2.4 2.1
Denmark 1.3 2.0 2.0
Norway 2.2 2.5 1.8
Italy 0.8 1.4 1.7
United Kingdom 2.2 2.7 1.6
Austria 0.4 1.3 1.5
France 0.1 1.2 1.5
Belgium -0.2 1.6 1.5
Finland 1.6 1.1 1.4
Netherlands 1.0 1.1 1.3
Portugal -0.9 0.8 1.1
Spain -0.3 1.2 1.0
Greece 1.4 1.9 1.0
Germany 0.1 0.9 1.0
Switzerland -0.4 0.7 1.0
Ireland -1.7 -2.0 -0.6

Source: IMF.

  • In most Western European countries the IMF expects higher inflation than it did in October 2009. This has been due to a quicker-than-expected economic recovery, as well as the maintenance of low interest rates by the European Central Bank (ECB) and in the UK;
  • 2010 inflation forecasts for France, Germany and the UK (the region’s biggest economies) have all been raised between October 2009 and April 2010. The sharpest increase was in the UK, where the IMF raised its forecast to 2.7% from 1.5%, and although is expected to ease in 2011 due to an expected shift towards higher interest rates, remains higher than mainland Europe due to rising food and energy costs;
  • The IMF expects inflation to be lower in Ireland than previously thought. Its forecast for 2010 is now -2.0% compared to -0.3% estimated in April 2009, partly due to low consumer demand and borrowing, but also due to a massive housing glut which has pushed down housing costs;
  • In Turkey inflation is predicted to rise from 6.3% in 2009 to 9.7% in 2010, due to higher manufacturing and producer prices as well as tax increases, for instance in alcohol and tobacco. Inflation in Iceland, which has been severely affected by the economic crisis, is forecast to fall from 12.0% in 2009 to 6.2% in 2010 because of weak domestic demand, lower bank lending and a series of interest rate cuts.
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