Many countries are seeing the worst inflation in decades

Transcript

STEVE INSKEEP, HOST:

We are living in a world of inflation. Inflation that has accelerated in the United States over the past year or two is present beyond U.S. borders. Three NPR correspondents are on hand to help us look at this. Scott Horsley is here in Washington. He covers economics. Lauren Frayer is in Mumbai, India. And Carrie Kahn is in Mexico City. Welcome to all of you.

SCOTT HORSLEY, BYLINE: Good to be with you.

LAUREN FRAYER, BYLINE: Hello.

CARRIE KAHN, BYLINE: Hi.

INSKEEP: And just to be clear, we were going to cover this story with just one correspondent, but there was inflation, so we brought three of you, and we're glad you're here.

(LAUGHTER)

INSKEEP: Anyway, Scott, what would make inflation global?

HORSLEY: You know, the pandemic, really, Steve, is at the root of this. It caused huge disruption to economic activity everywhere around the planet. We've had labor shortages, transportation bottlenecks. We continue to feel those effects more than two years after the coronavirus first struck. Right now we have factory lockdowns in Shanghai, for example. Here in the U.S., demand has come roaring back, but supply has not caught up. And then on top of that, you now have the war in Ukraine, which is disrupting markets for food and energy. This is a global problem. We've talked a lot about the annual inflation of the U.S. hitting 8.5% last month. It's almost that high throughout the Eurozone - 7.5%. Fish and chip shops in the U.K. have been shuttered because of the high cost of fish and flour and cooking oil. A lot of countries are now suffering through the highest inflation in decades. In fact, 60% of the advanced economies in the world now have inflation That's above 5%. In more than half the developing world, inflation is over 7%.

INSKEEP: Which is devastating for some people, at least inconvenient for many other people, and it's different from country to country. Lauren Frayer, is there a country in your region where this amounts to a crisis?

FRAYER: There is a country in my region, yes - Sri Lanka, where people are protesting in the streets over this and calling for their president to resign. You know, Americans are worried about inflation; Sri Lanka's is more than double the inflation rate in the U.S. It's nearly 19%. Tourism is a big part of Sri Lanka's economy, and Sri Lanka suffered a tragic terror attack in 2019, then the pandemic. Tourism really took a hit. And the Sri Lankan government responded by printing more money, which exacerbated inflation. And then instead of devaluing the currency, Sri Lanka's central bank spent a lot of its foreign reserves, and that left the government in shortfall - so unable to import fuel. It typically uses U.S. dollars to import fuel.

And so there have been these widespread shortages of diesel, of cooking gas, of oil and coal for power plants. So Sri Lanka is suffering rolling blackouts, sometimes eight, 10, 13 hours a day without electricity. And then last month, Sri Lanka devalued its currency finally, which led to more inflation. Food prices in a matter of days jumped 25%, diesel up 45%. And that's what's prompted people to get out in the streets and protest. And this has really been a cautionary tale for the rest of South Asia and the world.

INSKEEP: You've got these baseline problems around the world, and then you have specific problems of mismanagement in South Asia. Carrie Kahn, when you look at Latin America, which you cover, is there a hot spot?

KAHN: Peru has seen a lot of unrest over record price hikes. Last week, there were violent protests over rising food costs. At least five people died. Some protests still persist, especially among truckers and their unions and the poor, who can't afford any type of animal protein, especially chicken, now. Poor families are reportedly going to markets for leftover bones that they can just boil for some sort of protein.

But while the protests may have been lessened, the political crisis continues, and that's surrounding President Pedro Castillo. He's in big trouble. He's only been in office for nine months, Steve, and he's already fended off two impeachment attempts. Opponents say he's just inexperienced and fumbling the crisis. He's now decided to cut taxes on basic foodstuffs. And then lawmakers came in and tried to slip in tax breaks for some luxury food items like pheasant and steaks, and that just fueled more anger toward the government. And in the end, those were cut off the list of foods that got the tax breaks. But removing that tax is going to leave a big hole in the budget, which will have to be dealt with further down the line. And Castillo is still facing opponents trying to oust him. Many leaders in the region are pledging similar food price subsidies, as well as cuts to fuel tax and other tax cuts and, inevitably, will have to face these budget shortfalls soon.

INSKEEP: What is it like in one of the giants of your region, the country where you live - Mexico?

KAHN: Inflation concerns are great here, and we're seeing it in rising food costs, too. The tortilla, a main staple in Mexican diets, has jumped to more than $1, $1.15 a kilo. But the biggest factor contributing to high inflation here are fuel costs, and that spells trouble for the president. He campaigned - his pledge was, like, that he would never, ever, never raise gas prices. And President Andres Manuel Lopez Obrador remains pretty popular here, and he's managed to weather quite a lot and not take a hit politically, even after his dismal COVID response, Mexico's staggering violence here, some recent political scandals. He's survived it all. But inflation and these high fuel costs are hurting him and could hurt him further. He's weathering it now by subsidizing gasoline prices.

And remember; Mexico is a big oil producer and has had a bit of a windfall from rising global oil prices. So the president is diverting those profits to subsidize the gasoline, and it's unclear how long he can keep that up. At one point, along Mexico's northern border with the U.S., lower prices of gas prices were drawing Americans across the border, especially Californians where gas prices are so high, to come and fill up their tanks. So Mexico cut the gas subsidy in those states to try and discourage the cross-border consumers. But then a few days later, it backtracked and put the subsidy back. And while Mexico may be a big oil exporter, it's a huge importer of natural gas, and those prices have just skyrocketed. And that's something the president cannot control, and it's proving to be a political liability for him.

INSKEEP: Carrie, you mentioned crossing the border, but I want to figure out how that works in a practical sense. I mean, you and I have crossed that border between California and Mexico. So you're in California. You drive across. You get your cheap gasoline. And you turn around. And don't you, then, like, idle your car for hours while waiting to cross the border again?

KAHN: I thought the exact same thing, Steve, and how this was going to work. But, you know, I think that there are a lot of people that cross the border for work, and so they would fill up on the Mexican side instead of the U.S. side. A lot of people have high security clearances and can pass that border wait quickly. They've calculated how to do it. It was a phenomenon. And they were filling up in Mexico. So there must be a - they must weigh that factor. I remember in the '70s, my dad used to drive, like, 10 miles to get 2 cents lower gas, you know, when it was 28 cents a gallon in the San Fernando...

INSKEEP: It's the principle of the thing - the principle.

KAHN: (Laughter) I don't really know.

INSKEEP: Lauren, how does inflation affect the 1.4 billion people in India?

FRAYER: Yeah, when we talk about inflation in India, we're talking about whether people can afford to eat or not. The average Indian does not have a car, doesn't pay heating or air conditioning bills, energy bills like that, but where they feel inflation is really in food prices. And, you know, in Mexico, you've got the tortilla. Here, it's the onion. There's an old saying here that onion prices decide elections in India. And onions and everything else is just a lot more expensive. Annual inflation here is close to 7%. Rising food prices are a really big deal in rural areas, where the majority of Indians live, many in poverty. We're seeing people changing to cheaper edible oils, people boiling their vegetables rather than frying them in oil. And, you know, even if - you don't need a car to feel fuel prices going up. It reverberates through the whole supply chain. So shops, for example, mom-and-pop shops in India, are packaging, like, less volume of goods for the same price.

INSKEEP: Well, if onion prices are going up, does that mean trouble for Prime Minister Narendra Modi?

FRAYER: So the Indian government - during February and March, we had elections in five states across India, and the government didn't want to raise fuel prices, so it absorbed the hike, the government itself absorbed the hike in rising global fuel prices - so both at the pump, but then also did not pass that on to consumers, like ticket prices for trains or buses. And the government actually cut fuel tax then. But now those elections are over, and the government is allowing fuel prices to rise, and so people are feeling it more. And that nearly 7% figure that I mentioned is actually misleading because it doesn't include the fuel prices. The fuel prices were kept artificially low by the government, and now it's likely to rise pretty quickly.

The Indian government is also releasing grain stocks into the economy. So India has a food surplus. The government keeps stocks. And it's trying to boost the food supply in an effort to lower prices. And so far, the Indian government has been able to afford this. The Indian government has, like, $600 billion U.S. dollars in foreign reserves. Places like Sri Lanka, the government there could not afford to do that. And it has doubled interest rates. There was a day that the Sri Lankan central bank raised its interest rates by seven points in a single day. Sri Lanka has also stopped paying its foreign debt, and it's in talks with the International Monetary Fund for a bailout.

But I just want to say, you know, in all these developing countries, economists say that some inflation is actually seen as a good thing because it's a sign of growth. And so while the U.S. Federal Reserve's inflation target is 2%, in India it's, like, 4 to 6%. And so India's just slightly above that now.

INSKEEP: Sure. Among other things, if you're a debtor, if you've got debts to pay, you wouldn't mind some inflation because the dollars you pay it back with are cheaper than the ones that you borrowed in the first place. Nevertheless, we've got this trend that's affecting, according to your reporting, everything from fertilizer in South Asia to tortillas in Mexico City. So let's bring back Scott Horsley. Is there much that any of these political leaders can do about inflation?

HORSLEY: You know, Lauren talked about how India is releasing grain from its stockpiles. Obviously, the Biden administration has been doing the same thing with crude oil here in the U.S., releasing oil from government stockpiles in an effort to bring down gas prices. Some state governments in the U.S. have also weighed tax breaks on gasoline. Ultimately, it is a central bank's job to crack down on inflation, and central banks around the world are starting to do so - in most cases, not as dramatically as the central bank in Sri Lanka. But, you know, that doesn't work overnight. At the height of the pandemic, the U.S. government tried to prop up demand by pumping a lot of extra cash into the economy. That may have worked too well, fueling some of this high inflation we're now seeing. A lot of that pandemic-era relief has now come to an end, and that leaves people to deal with these higher prices as best they can.

INSKEEP: NPR's Scott Horsley, Carrie Kahn and Lauren Frayer. Thanks to all of you.

HORSLEY: You're welcome.

FRAYER: You're welcome.

KAHN: Thank you. Transcript provided by NPR, Copyright NPR.