Mapped: Which Countries Have the Highest Inflation Rate?

The general increase in price levels, most monetary economists believe, comes directly from an increase in money supply through a rise in the rate of nominal spending (nominal gross domestic product [NGDP]) above the nominal trend required for full employment or potential GDP. Above that nominal trend, the economy becomes “overheated,” and prices in general are inflated. While this understanding of the effects of nominal spending above its trend level is indeed correct, neglecting how such increases arise and continue tends to miss significant effects arising from the real, productive side of the economy that have facilitated US inflation since early 2021.

Any increase in nominal GDP growth above the trend rate of growth is inflationary in the sense that productive agents in the economy are competing for relatively scarce resources. But this growth in nominal spending, which leads to higher prices, also inflates the profit margins of firms, thereby creating profitable opportunities.

Higher profit margins prompt firms to expand their output by increasing their capacity utilization. At the same time, rising profits lead to a reallocation of capital from lower-profit industries to those that have experienced this profit-margin growth. When discovered by entrepreneurs, these profit opportunities result in the expansion of the economy’s output capacity through capital investments.

These supply increases give rise to counterbalancing downward price pressure. Firms competing for the same customer offer lower prices, and this fall in scarcity relative to demand stops the rise in prices and may even cause falling prices.

A onetime increased nominal growth in spending can initiate the equilibration process by increasing the supply of goods. But such a reallocation process requires a period of high prices in which the same resources that were being used in the production of final consumer goods can be freed up and allocated toward the production of capital and investment goods. This would increase the economy’s production capacity and mitigate the rise in demand.

The increase in productivity developed to handle high demand increases the potential GDP (or the total means demanded by individuals) and subsequently the trend rate of nominal spending required to achieve a stable price level.

This price equilibration process is an interactive process where manufacturers’ higher prices are accepted and paid by consumers. However, if the rise in prices is not a onetime phenomenon but persists, it is because the growth of supply is lower than the growth of demand for goods in real time, which does not allow the market to rebalance. If demand doesn’t fall in response to high prices, typically consumers pay for goods using accumulated savings or by borrowing. This does seem to have occurred in the US economy, where both the absolute amount saved and the savings rate have been falling since the start of 2021.

But the fall in savings (or lack of them) soon leads people to reduce spending on nonessential goods as real incomes continue to fall and high prices persist. This subsequently causes a drop in demand for nonessential consumer goods, causing a reduction in the output of those goods. Businesses then demand less inputs, allowing for the correction period to begin.

However, we see that consumer debt (per the Federal Reserve) increased from 3.63 percent in December 2020 to a peak of 12.12 percent in March 2022 and declined to 7.8 percent in August 2022. The credit spending was in large part due to interest rates, which the Fed did not increase until March 2022. This credit spending ensured that prices did not fall (i.e., there were no deflationary price adjustments) due to decreased demand, whereas the generation and use of money to finance consumption (by encouraging consumers to draw down savings and increase credit spending) delayed the adjustment period actually required for supply to catch up with demand.

If consumption doesn’t fall and goods are purchased at higher prices, then a scarcity of specific inputs can occur. Since inputs are used in increasing output, scarcity prevents adequate investments toward handling excess demand.

Some of these specific goods are raw materials produced in the primary stage of production. Raw material produced through agriculture, forestry, fishing, mining, oil extraction, and other industries are created by processes that take more time and generate cyclical output flows. As these inputs form the base of almost every other product or service provided to consumers, fluctuations in their prices are a significant inflationary component in consumer goods prices.

When higher costs are financed by both an increase in credit and a drawing down of savings, inflation continues until there is a sufficient fall in spending to allow the market to reallocate resources. This adjustment can come in the form of a recession, in which a rise in unemployment leads to a fall in spending. A reduction in spending causes the drop in demand necessary to initiate the reallocation process.

A recession with falling output and rising unemployment serves as the adjustment period during which businesses are separated into two categories: profitable investments in areas that can support higher prices based on consumer demand and unprofitable investments that previously seemed profitable solely due to unnaturally low interest rates and aggressive fiscal spending. The unprofitable enterprises either shut down or reduce operations during the adjustment period. Their workers are reallocated to businesses where they can be profitably employed based on consumer income and natural spending capacity.

Nominal gross domestic product (NGDP) targeting seeks to stabilize economic output, equated with nominal GDP, by pursuing a rate of growth consistent with the economy’s potential output. With today’s rising inflation, this means either raising interest rates or decreasing the money supply until spending is consistent with the Fed’s target. NGDP targeting would also subsequently lower interest rates during the coming recession to try to ensure that spending doesn’t collapse.

Pursuing such policies inevitably blinds one to the natural course of the real economy. The real economy relies on a heterogeneous capital structure, generates a steady output determined by genuine consumer choice, and leads to natural employment levels and prices. NGDP targeting shrinks the reallocation window and thus keeps the market unbalanced longer.

Keeping interest rates lower than the interbank market rates and increasing the money supply inevitably lead to a false expansion in certain sectors, which, in turn, raises their employment and output. But such an expansion, not sustained by consumer choice and income, will need repeated monetary injections during a recession. This would mirror the way the economy was manipulated after the covid-19 recession, which has led to today’s high inflation and stagnating output.

A key United Nations summit to halt nature loss begins this week in Montreal, Canada. Delegates from nearly 200 countries will spend two weeks hashing out a new global deal to protect the world's struggling species and fast-vanishing wild places.

Here is what you need to know:

This month's Montreal summit is sometimes referred to as COP15, as it is the 15th "conference of parties" - or nations - signed onto the 1992 U.N. Convention on Biological Diversity (CBD).

China holds the COP15 presidency, meaning it is responsible for facilitating year-round negotiations ahead of hosting the deal-making summit. The CBD holds a summit every two years under a rotating presidency. China's COP15 summit has been delayed four times, however, from its original date in 2020 due to COVID.

The world's last set of nature targets - the Aichi Targets - expired in 2020. Currently, there is no global agreement in effect.

Nevertheless, there are currently more than 1 million species threatened with extinction, as plant and animal species vanish at a rate 1,000 times faster than the natural extinction rate.

In Montreal, negotiators are considering 23 new targets, tackling everything from pesticides and noise pollution to corporate disclosures around the use of natural resources.

Scientists and campaigners are pushing for countries to adopt a "Paris Agreement for nature" - referring to the 2015 deal brokered at the U.N. climate talks in Paris to hold global warming to within 1.5 degrees Celsius.

The hoped-for conservation agreement would see countries commit to ensuring that, at the end of this decade, the world holds more "nature" — animals, plants, and healthy ecosystems — than there is now.

A robust agreement would include goals that are easy to measure and monitor, with countries reporting regularly on their progress in protecting nature. So aside from deciding which targets to set, countries will also be debating how much oversight they will commit to.

Of the 23 proposed targets, one has garnered more attention and ambition than others. Known informally as "30-by-30," this target would see countries commit to protecting 30% of their land and sea territories by 2030.

Already, more than 110 countries, including the United States and Canada, have pledged support for this goal, though the United States is the only country to have never signed onto the CBD. COP15 host China has so far committed to 25%.

The target builds on a previous, unmet global goal that countries protect 17% of their land and inland waters and 10% of their marine areas by 2020. While that goal inspired some conservation measures, overall the world fell short.

To protect nature, countries will need cash - a lot of it. Currently, there is a funding gap of at least $711 billion per year, according to a 2019 assessment by several conservation institutes.

As part of the talks, countries will discuss ways of raising money and redirecting funds toward conservation goals. These could include rethinking subsidies for industries that pollute or in other ways harm nature.

A draft of the deal being negotiated includes a call for slashing these so-called harmful subsidies by at least $500 billion annually from the estimated $1.8 trillion given to activities that degrade nature. It also envisions increasing both public and private sector financing to at least $200 billion per year.

That's still short of what U.N. experts themselves say is needed. While $154 billion in private finance is now going toward "nature-based solutions" that tackle climate change, land restoration and biodiversity protection, that amount needs to more than double to $384 billion per year by 2025, according to a U.N. Environment Programme report last week.

Environmental groups argue that rich nations should provide at least $60 billion per year to help developing countries meet their nature targets.

While countries are discussion how much reporting and oversight to include in the agreement, big business is also being asked to disclose more about their impact on the natural world.

One of the 23 proposed targets would require all businesses and financial institutions to assess and disclose their impacts and dependencies on nature by 2030. From there, they would have to reduce their negative impacts by at least half.

While this target could see some resistance from some industries including agriculture or mining, there is also widespread support among many businesses that rely to some extent on natural resources. More than 330 business and finance institutions with combined revenues of some $1.5 trillion have urged world leaders to adopt this goal.

Global renewable power capacity is on track to nearly double in the next five years, overtaking coal as the largest source of electricity generation, the International Energy Agency (IEA) said.

Renewable power capacity is expected to grow by 2,400 gigawatts by 2027, equivalent to the current power capacity of China, the world's second-largest economy, the IEA said in its Renewable 2022 report.

"Renewables were already expanding quickly, but the global energy crisis has kicked them into an extraordinary new phase of even faster growth as countries seek to capitalise on their energy security benefits," said Fatih Birol, IEA executive director.

"This is a clear example of how the current energy crisis can be a historic turning point towards a cleaner and more secure future world energy system."

Energy security concerns caused by Russia's invasion of Ukraine have encouraged countries to turn increasingly to renewables such as solar and wind to reduce reliance on imported fossil fuels, whose prices have surged dramatically.

Renewables are set to account for more than 90 per cent of global electricity expansion over the next five years, mostly driven by Europe, the Paris-based agency said.

Global solar PV capacity is set to almost triple between now and 2027, becoming the largest source of power capacity in the world. Wind capacity is expected to double in the same period, with offshore projects accounting for one fifth of the growth.

Europe is currently in its worst energy crisis after Russia, the continent's biggest energy exporter, slashed its exports of natural gas in response to wide-ranging EU sanctions.

A faster spread of wind and solar PV could be achieved if EU member states "rapidly" introduce a number of policies, including streamlining and reducing permitting timelines, improving auction designs and providing greater visibility on auction schedules, the IEA said.

China, which has the world's largest installed solar capacity, is expected to account for almost half of new global renewable power capacity additions over the next five years.

The US Inflation Reduction Act, which has offered tax incentives for wind, solar and other renewables, has provided "new support" and "long-term visibility" for the expansion of such energy in the country, the agency said.

Investment in solar manufacturing will receive a $25 billion boost, thanks to new policies in the US and India, the IEA said.

China's share in global solar panel manufacturing capacity could fall to 75 per cent by 2027, from 90 per cent currently, the agency added.

The IEA has also laid out an "accelerated case" in which renewable power capacity grows 25 per cent higher than the current forecast.

Faster growth would require regulatory and permitting challenges to be tackled in advanced economies, along with a more "rapid" penetration of renewables in the heating and transport sectors, the agency said.

Emerging and developing economies need to address policy and regulatory uncertainties, weak grid infrastructure and a lack of access to affordable financing that are hampering new projects, the IEA added.

"Worldwide, the accelerated case requires efforts to resolve supply chain issues, expand grids and deploy more flexibility resources to securely manage larger shares of variable renewables," said the agency.

"The accelerated case's faster renewables growth would move the world closer to a pathway consistent with reaching net zero emissions by 2050, which offers an even chance of limiting global warming to 1.5 °C."

Indonesia's new criminal code ushers in a raft of new laws, including banning sex outside of marriage, insulting the president, and expressing any view that runs counter to state ideology.

Among the most contentious articles are those that criminalise sex outside marriage with a punishment of up to one year in jail. Cohabitation between unmarried couples is also banned.

The laws have been partially watered down from an earlier version of the bill so that they can only reported by some people, such as a spouse, parent or child of the offenders.

Still, critics are concerned the laws can be used to police morality in the world's largest Muslim-majority nation, which has seen a rise in religious conservatism in recent years.

And since they also apply to foreigners, the laws can scare away visitors, including those coming to the prime tourism destination of Bali.

Currently Indonesia bans adultery but not premarital sex.

In addition, the articles that ban insulting the president or state institutions, blasphemy, protesting without notification and spreading views deemed to run counter to Indonesia's secular state ideology have also raised fears about threats to freedom of expression and association.

An article on customary law has triggered concern that some sharia-inspired local bylaws could be replicated in other areas, reinforcing discrimination against women or LGBT groups.

The new laws will apply to Indonesian citizens and foreigners alike, but will not come into effect for another three years as implementing guidelines are drafted.

Weeks after hosting a successful Group of Twenty (G20) summit that reinforced Indonesia's position on the global stage, business groups say the new code threatens to damage the country's image as a tourist and investment destination.

Shinta Widjaja Kamdani, deputy chairperson of the Indonesian Employers' Association (APINDO), said the rules would do "more harm than good" and act a deterrent to investment.

Indonesia is also trying to entice foreign visitors back after the pandemic and the national tourism board described the new code as "totally counter-productive".

"We deeply regret that government have closed their eyes. We have already expressed our concern to the ministry of tourism about how harmful this law is," said Maulana Yusran, deputy chief of Indonesia's tourism industry board.

The passage of the bill comes after earlier plans to pass a revised code were shelved in 2019 amid mass street protests across the archipelago over the threat to civil liberties. President Joko Widodo stepped in and put the process on hold.

But recent public opposition has been muted in comparison and parliament has revised some of the articles even though critics say the changes do not go far enough and describe the bill's passage as a "huge setback" for Indonesia's young democracy.

Indonesia has been discussing revising its criminal code since declaring independence from the Dutch in 1945.

Deputy justice minister, Edward Omar Sharif Hiariej, told Reuters ahead of the bill's passage he was proud his country would have a criminal code "in line with Indonesian values" and it was time to move beyond its colonial-era laws.

Indonesia's population is predominantly Muslim but has sizeable groups of Hindus, Christians and people of other faiths. Most Indonesian Muslims practice a moderate version of Islam, but in recent years religious conservatism has crept into politics.

The new code was passed with the support of all parties in the parliament, which is dominated by a large government coalition, and also Islamic parties and groups.

Defending the passage of the bill against criticism, Indonesia's Law and Human Rights Minister Yasonna Laoly told parliament on Tuesday: "It's not easy for a multicultural and multi-ethnic country to make a criminal code that can accommodate all interests."

Can you see them? While a barrage of horrid headlines blinds most investors, a stealthy stream of economic positives builds.

This growing gap between sunken sentiment and improving realities precedes a positive surprise — fuel for stocks' long-awaited recovery.

Let me show you the better-than-believed realities hiding in plain sight.

Perhaps this sounds like I'm using rose-tinted glasses. That is understandable given the hard 2022 we have had.

But that reaction is standard around bear market lows, when what I call the "pessimism of disbelief" makes investors hyper-focused on bad news, dismissing positives. That is everywhere today.

Globally, sentiment surveys are dour. Only 28.9 per cent of respondents were bullish in the latest weekly survey by the American Association of Individual Investors.

Before rising slightly in November, Sentix's eurozone economic expectations index hit a 14-year low, with Germany's reading the lowest since January 2009.

GfK's UK confidence gauge registered its two lowest-ever readings in October and November.

But set aside this year's frustration to correctly envisage the landscape.

Start with global supply chains. The New York Federal Reserve's Global Supply Chain Pressure Index ended 2019 at 0.01 — signalling no identifiable issues.

Last December, it soared to 4.3 — hugely above its norm, statistically — tied to the fallout from the Covid-19 shutdown.

Now? It is 1.0 — elevated, but far below peak disruption.

One key component, the Baltic Dry Index of shipping costs, is -76.5 per cent off October 2021's high.

Purchasing managers' indexes reveal supply chain snarls unwinding, cooling input price pressures.

S&P's US manufacturing Purchasing Managers Index showed October input costs rose the slowest in nearly two years as supply chain hiccups unwound. Hence, US consumer and producer prices cooled in October.

But many slowing inflation harbingers are not yet evident in Consumer Price Index data.

Quickly adapting supply chains create another positive surprise: Europe's better-than-feared energy reality.

After Russia's invasion of Ukraine caused western boycotts, supply chains reshuffled — fast.

India and China bought up discounted Russian oil, freeing other supplies for Europe — American, North African and Middle Eastern.

That saps sanctions' effectiveness, but helps supply/demand dynamics.

Through the third quarter, global oil supply exceeded demand. Price signals have producers pumping more — look at Adnoc accelerating planned production increases.

Hence, oil prices fell -37.2 per cent since March's high in US dollars, bringing down petrol prices.

Regarding European natural gas fears, the International Energy Agency says the bloc's storage is 95 per cent full — above the five-year average. Germany is at 100 per cent.

The continent's first new natural gas pipeline in decades — a Danish and Polish endeavour — began carrying Norwegian gas to central Europe in October.

Several new German liquefied natural gas terminals are expected to come online early in 2023.

Yet pundits dismiss these developments, shrieking yeah, but next year will be worse — classic pessimism of disbelief.

Meanwhile, third quarter US gross domestic product growth flipped positive at 2.9 per cent annualised.

Chinese growth hit 3.9 per cent year over year, up sharply from the second quarter's 0.4 per cent.

The high oil prices many bemoan boosted Middle East growth. Even eurozone GDP topped expectations at 0.8 per cent annualised.

Yes, Japan's GDP contracted, but that was caused by a weak yen quirk skewing import prices.

Easing travel restrictions tee up a turnaround in the fourth quarter.

Citi's US, eurozone, UK and China economic surprise indexes are all now positive — well above negative midyear lows. Still, recession chatter dominates.

Yet recession likely isn't nearby. Why?

Lending overall, excluding mortgages, remains robust globally — fuel for investment and incongruent with recession.

Businesses and households generally don't sit on bank borrowings. They spend them!

Global loan growth has accelerated every month since March, reaching 9.3 per cent year-over-year in September. In America, it hit 12 per cent.

This isn't flukiness — it is fundamental.

Abundant cash deposits keep deposit rates — banks' funding costs — minuscule. Average US savings accounts yield a paltry 0.2 per cent.

Best-in-a-decade UK rates make headlines … but attached limits and fees keep banks' payouts puny.

Meanwhile, long rates' global rise boosts new loan revenue. More profitable loans incentivise more lending, staving off recession.

Other positives? Travel. Somewhat ignored now is the world economy's continued reopening.

New data show September global air travel soared 57 per cent year over year, at 74 per cent of pre-pandemic levels.

In the week ending November 19, US hotel occupancy rates topped the same week in 2019 — despite 19.8 per cent higher prices.

These perking, overlooked positives intersect with America's post-election political clarity — a huge global market driver.

The success of US Republicans in capturing the House of Representatives in November's midterm elections has cemented gridlock, which stocks love. They hate big, controversial legislation increasing uncertainty. Gridlock squashes that through 2024 — bullish.

These growing buds of optimism won't stay hidden forever. Look past the gloom and appreciate them.

The media, citing people briefed on the matter, reported on Friday that Bridgewater's Pure Alpha fund plunged 13.2% in the fourth quarter that ended November 25, and its year-to-date gain fell to 6%. No one would have predicted this outcome before October. Just 2 months later, the twist in this plot is too shocking. However, this phenomenon is also the norm in the market.

In the first half of the past year, US funds raised its interest rates constantly, while Europe was deeply involved in the Russian-Ukrainian conflict and the energy crisis. Based on this, Bridgewater Fund was bearish on the European and American economies. Firstly, it shorted European and American corporate bonds with a basket of credit derivatives in April. And then betted heavily on US dollars to short European stocks in June, turning into the largest short position in the European market. The scale of its short position even reached $10.5 billion by the end of June. After a brief partial profit stop in August, it quickly increased its short position again in September to short European stocks.

At this time, Bridgewater has reached its peak of the year. Pure Alpha II has achieved a return of 32% in the first half of this year, which is its best annual performance since 2010, and gains for the full year have increased by about 27%. It is worth mentioning that when Mr. Dalio stepped down, the annual increase of the Fund was just over 22%. Perhaps the current Bridgewater directors are more or less complacent? Loaded up again after taking a profit in August? That is what the charming market is, and no one knows who is the winner until the end.

You see, the tragedy began to unfold in October. European stocks began to bottom out. Since the pan-European Stoxx 600 index hit a stage bottom of 380.04 on September 29, it began to rebound violently against the trend. As the chart displayed below, the increase has exceeded 16% as of December 5. In the end, we have also witnessed a large drawdown from Bridgewater, perhaps even larger now than that at the end of November.

The gorgeous performance of Dalio is undeniable, but this is not a trend trading that retail investors are capable to imitate. For one thing, global macro investment requires deep economic expertise, and most traders cannot see the world the way he does, let alone global investment, even if they study it all their lives. But what we can do is be the most professional in a certain industry. And for another, do not put the eggs in the same basket, which indicated that diversified investment is needed, especially those commodities with low correlation. It sounds like it's not hard to achieve, but investors can make it. Finally, if your prediction was wrong, all your efforts will be in vain. However, the most valuable thing for Dalio to learn is to trade your plan and develop an investment project that matches your professional knowledge goals. Keep the habit of unifying your knowings and doings, and perhaps you will gradually be wealthier over time!

When I first entered the investment industry, Dalio's autobiography seemed confusing, who would like mistakes? However, the more I experienced it, the more I felt it. As long as you stay in this market for a day, you will keep making all kinds of mistakes. Bad things will happen to all of us sooner or later, and how we deal with them determines whether we succeed or fail. As he proposed pain + reflection = progress, pain is the norm in trading.

"China is going through drastic changes unseen, most people seriously misinterpret these changes, and some assets have been sold off as a result. Now you can find some extremely valuable assets in the Chinese market, and the price them is very attractive. It is important to allocate part of the capital to China.” Dalio said recently. It is difficult for a ship to turn around, and so is a large amount of money to shift their trading direction. The two months when Bridgewater's short performance in European stocks plummeted, exactly coincided with the sharp rise of the Euro and RMB. Could it be that Bridgewater has begun to admit its mistakes? Stop loss is a technique while taking profit is an art.

Looking ahead to 2023, it may be a year that China is expected to come out of an inflection point. Since the pandemic, the economic cycle in China and globally has been misaligned. Compared with advanced economies in the world, China's economy has enjoyed continuously low-interest rates and inflation. As the global environment has also begun to recover gradually, better measures have been issued by China for several problems that the market is most worried about. First of all, the pandemic prevention and control measures have undergone qualitative changes, and the rest is a matter of time, which is the best medicine to restore the confidence of private enterprises. Secondly, in terms of real estate, the introduction of the "Financial 16 Rules" has stabilized market sentiment and opened up the financing of listed real estate enterprises, which is a great benefit for investors. Finally, the external environment is also a factor for market considerations, such as the Sino-US meeting, the Sino-German meeting, etc., which makes China play a key role in future geopolitical stability.

This may not be good news for Chinese bonds. The trend of the RMB exchange rate next year is likely to keep track of economic fundamentals, which is supposed to be an appreciation trend. Therefore, the current attractiveness of Chinese government bond yields will be much lower than that of Europe and the United States. The market has already priced that rate hiking of the dollar in 2023 will be paused, or even cut. In the context of a sluggish global economy, the market would rather look for opportunities with a more certain return than uncertainty, including US investment grade bonds with yields of about 5% and some high-yield short-duration bonds. Besides, Eurobonds and the turning of global bond funding seem under consideration as well. A large number of capital was exported in the years when the ECB's interest rate was 0, but now the yield of European bonds is higher than that of US Treasury bonds (after the exchange rate hedge), so perhaps a considerable amount of money will return to the European market, and the appreciation of the Euro can be expected.

For the equity market, it may be a good start. However, after major trauma, Chinese investors will need a period of time to recover gradually, and they are going to be more cautious at the same time. Looking ahead, the sector differentiation may deeply widen, but energy security, food security, and consumption will never go out of style. In Bridgewater's holdings, stocks of consumer goods are still "favorites", accounting for as much as 40%, followed by financial stocks, which is a better reference.

For commodity markets, will copper and iron as barometers count on Chinese real estate? Unfortunately, it is the best result that real estate is able to survive now. More development in the future of real estate will lead to a geometrical decline. It is suggested to bear the entire non-ferrous metal and black series. And precious metals, with no additional yield, are currently at a high level in history. If it fails to maintain going upwards, the only way is to fall. The best way is to go short the gold-silver ratio (short gold and more silver) that I proposed in October. The differentiation of the energy and chemical industries will be relatively large, but the general direction is still too short for industries with large profits and long serious losses.