The Economist - USA (2022-05-14)

68 Finance&economics TheEconomistMay14th 2022

portshavefallenbyabout44%sincethe

invasionofUkraine,whileitsexportshave

risenbyroughly8%.

Importshavecollapsedpartlybecause

sanctionsontheRussiancentralbankand

theexpulsionofsomelendersfromthe

swiftinterbankmessagingnetworkhave

madeitharderforconsumersandfirmsto

buyWesterngoods.ElinaRibakovaofthe

InstituteofInternationalFinance(iif),a

bankers’group,saysthatregulatoryuncer­

taintywasalsoa bigfactoratfirst,asWest­

ern firms were unsure which Russian

banks came under sanctions. Logistical

disruptions,includingdecisionsbyWest­

ernfirmstosuspenddeliveriestoRussia,

mattered,too. The earlydepreciationof

the rouble also dampened Russian de­

mandforimports,saysClausVistesenof

PantheonMacroeconomics,a consultancy.

Russia’sexports,meanwhile,haveheld

upsurprisinglywell,includingthosedi­

rectedtotheWest.Sanctionspermitthe

saleofoilandgastomostoftheworldto

continueuninterrupted.Anda spikeinen­

ergypriceshasboostedrevenuesfurther.

As a result, analysts expect Russia’s

trade surplus tohit recordhighs inthe

comingmonths.Theiifreckonsthatin

2022 thecurrent­accountsurplus,which

includestradeandsomefinancialflows,

couldcomeinat$250bn(15%oflastyear’s

gdp), morethandoublethe$120bnrecord­

ed in2021.That sanctionshave boosted

Russia’stradesurplus,andthushelpedfi­

nancethewar,isdisappointing,saysMr

Vistesen.MsRibakovareckonsthattheef­

ficacy of financial sanctions may have

reacheditslimits.A decisionto tighten

tradesanctionsmustcomenext.

Butsuchmeasurescouldtaketimeto

takeeffect.Evenif theeuenactsitspropos­

altobanRussianoil,theembargowouldbe

phasedinsoslowlythatthebloc’soilim­

portsfromRussiawouldfallbyjust19%

thisyear,saysLiamPeachofCapitalEco­

nomics,a consultancy.Thefullimpactof

thesesanctionswouldbefeltonlyatthe

startof2023—bywhichpointMrPutinwill

haveamassedbillionstofundhiswar.n

Consumerprices

Publicenemy

I

nflation dominates the American

popular psycheto anextent notseen

sincethe1980s,whenpriceswerelastris­

ingatthecurrentpace.Muchlikecom­

plainingabouttheweatherorlastnight’s

basketballplay­offs,moaningabouthigh­

erpriceshasbecomea conversationstart­

er.AccordingtofigurespublishedonMay

11th,consumerpricesroseby8.3%inApril,

comparedwiththepreviousyear.A day

earlier,PresidentJoeBidencalledfighting

inflation his “top domestic priority”.

Newspapersarepublishingfourtimesas

manystoriesmentioninginflationasthey

didayearago;severalpollssuggestthat

Americansbelieveinflationisa biggerpro­

blemfortheircountrythanthewarinUk­

raine.ButAmericaisnotalone.Inflationis

alsobecomingbakedintoeverydaylifein

otherpartsoftherichworld.

TheEconomisthasgathereddataonfive

indicators across ten big economies—

”core”inflation,whichexcludesfoodand

energyprices;thedispersionininflation

ratesforthesub­componentsofthecon­

sumer­priceindex;labourcosts;inflation

expectations;andGooglesearchesforin­

flation.Togaugewhereinflationhasbe­

comemostpervasive,werankeachcoun­

tryaccordingtohowitfaresoneachmea­

sure, and then combine these ranks to

forman“inflationentrenchment”score.

Continental Europe, so far at least,

seems tohave escapedtheworst ofthe

scourge.Inflationisleavingbarelya trace

onJapan.Butitisentwiningitselfaround

Anglophoneeconomies.Canadaisfaring

slightlyworseeventhanAmerica.Britain

hasa bigproblemonitshands(seechart).

A fewfactorsexplainthedifferences.

Totalfiscalstimulus across Anglophone

countriesin2020­21wasabout40%more

generousthaninotherrichplaces,accord­

ingtoourestimates.Itwasalsomorefo­

cusedonhandoutstohouseholds(suchas

stimuluscheques).Thatmayhavefurther

stokeddemand. Monetarypolicyintheeu­

roareaandJapanwasalreadyultra­loose

beforethepandemic,limitingtheamount

ofextrastimuluscentralbankscouldpro­

vide.Britain’s inflationmayalsoreflectan

idiosyncratic factor:Brexit. It turns out

that breaking with your largest trading

partnercausescoststorise.

Thesimplestcomponentofourranking

istherateofcoreinflation.Thismeasure

gives abetter senseofunderlying price

pressure.Amongourtencountries,Amer­

icaleadsthepack(thoughcoreinflationis

aboveaverageprettymucheverywhere).

Asecondmeasure,ofdispersion,helps

capturehowbroadlybasedpricepressures

are.Headlineinflationbeingdrivenbyone

ortwoitems—say,thecostofa restaurant

meal—islessworrisomethanif thepriceof

everythingisgoingupquickly.Wedividea

country’sconsumer­goodsbasketintoas

manyas 16 components,thencalculatethe

sharewheretheinflationrateexceeds2%.

InJapanjusta quartercrossthatthreshold.

S ANFRANCISCO

Americawasfirst.Nowinflationisstartingtolookentrenchedinotherplaces

Baked in

Sources:BankofEngland;FederalReserveBankofCleveland;GoogleTrends;MorningConsult;OECD;RaphaelSchoenle;nationalstatistics;TheEconomist

*AveragerankingoffiveindicatorsinselectedOECDcountries:coreinflation,inflationdispersion,inflationexpectations,Google-searchinterest,changeinunit-labourcosts †Excludingenergyandfood

‡Basedondatafor 66 countries

Japan

Italy

SouthKorea

Spain

France

Australia

Germany

Britain

UnitedStates

Canada

100806040200

TheEconomist’sinflation

entrenchmentscore*

May2022,mostentrenched=00

6420-2

Coreconsumerprices†

Q2022,%change

ona yearearlier

0 2 4 6

Consumers’expectationsof

inflationoverthenext1months

Apr2022,%

0 20 40 60

Google search volume for

“inflation”, Feb-May 2022 average,

top country=00‡