Line chart demonstrating that global inflation has risen recently.
Y-axis: CPI YoY (%), x-axis: years 2007 – 2021. Inflation shown for:
Inflation was the highest in BRIC countries, having risen to above 5% in 2019 from 2.5% in mid-2017. By the end of November 2020 it was at 3.5%. By the end of August 2021 it was near 5.6% Historically, BRIC inflation rose from 5% to near 9% by 2008 and remained near or above 6% until 2015, when it again rose above 8%. It then experienced a sharp decline to 2.5% by 2017 before resuming its upward trend.
In the Eurozone and the U.S., inflation began near 2%, rose to over 4%, then declined sharply near the end of the decade (to -2% for the U.S. and below 0% for the Eurozone). By 2013 it had increased to around 2% for both areas. By 2015, inflation was near 0% for both, increasing by the end of November 2020 to 1.2% for the U.S. and remaining just below 0% for the Eurozone. As of the end of August 2021, the U.S. was near 5.3% and the Eurozone was near 3%. An arrow in the chart highlights these recent rises.
Japan began with the lowest inflation rate at 0%. This increased to above 2% in 2008, then fell to below -2% by 2009. It increased to near 4% by 2014, then fell sharply to near 0% by 2015. Since then, Japanese inflation has fluctuated from near -0.5% to above just above 1%, but by the end of December 2020 stood at -1.2%. By the end of August 2021 it stood -0.4%
Line chart demonstrating growth in costs for producers in China, the Eurozone, and Japan, with lines trending similarly.
Y-axis: Index YoY (%) from -10 to 0 to +15, x-axis: Years 2007 – 2021. Low near -8% in 2009 for all three producers before rising sharply to above 5% early in the new (2010) decade (2% for Japan). Broadly speaking, costs declined to near -5% by 2016, rose sharply to 3% or more by 2017. As of the end of November 2020, costs were declining at rates of -2.3% for Japan, -1.5% for China, and near -1.9% for the Eurozone. As of late February 2021, China’s costs were at 1.7%, Japan at -0.7%, and the Eurozone — as of late January 2021 — at 0.0%. By the end of August 2021, costs were at 13.4% for the Eurozone, 9.5% for China, and 5.5% for Japan.
Sources: Bloomberg, and Wells Fargo Investment Institute. Monthly data from January 1, 2007 to August 31, 2021. BRIC is an acronym for the economies of Brazil, Russia, India, and China. CPI is the Consumer Price Index, which measures the price of a fixed basket of goods and services purchased by an average consumer. PPI is the Producer Price Index, which measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services. YoY = year-over-year.
- Aggressive monetary and fiscal stimulus has supercharged a powerful post-pandemic recovery, lifting inflation in most developed economies to levels not seen since the Global Financial Crisis over a decade ago.
- Even a modest rise in interest rates propelled by higher inflation poses a threat to stability of more highly charged financial markets following years of aggressive monetary stimulus by central banks in the U.S. and abroad.