Current Inflation and its Global Latent Effect

Published On: 10 August 2022Categories: Dorr Insider Report

Two years ago, when millions of people were without jobs and central bankers and politicians were working hard to pull the economy of the United States out of a pandemic-induced recession, inflation appeared to be of minor concern. One year later, when the unemployment rate began to fall and inflation began to soar, many of the same officials argued that the price increases were only temporary, resulting from disrupted supply chains, labor shortages, and other issues that would eventually be resolved.


In the U.S., the annual inflation rate in May was 8.6%, the highest level since 1981, according to the most recent report from the Bureau of Labor Statistics. This is the highest level that inflation has reached since the early 1980s, with the consumer price index in the United States used to measure inflation. In addition, the average inflation rate across the world is anticipated to be 7.7% in the year 2022. According to information published by the World Bank, this suggests that the inflation rate for 2022 will be five percentage points more than the average inflation rate for the prior decade (2010 to 2019). There is some relief on the horizon, however, as inflation is anticipated to average 6.2% in 2023 and 4.5% through 2026, according to projections made by experts.

Figure 1: Inflation expectations for 2022. Source: Economic Experts Survey (Q2, 2022)

Despite the fact that forecasts for inflation worldwide in 2022 are somewhat high, projections for inflation in individual countries and regions differ quite a bit. According to projections made by economic analysts, countries in South America, West and Central Asia, North and East Africa, and Africa all have the potential to see rates of inflation that regularly exceed 20%. The regions of the world with the lowest estimations for inflation are North and Central America, a major chunk of Europe, East and Southeast Asia, Oceania, and Southern Africa, all of which have numbers that are lower than 10%. This also demonstrates that Germany’s historically high inflation rates, which are the subject of a considerable amount of political and popular controversy, are nevertheless relatively moderate in comparison to those of other nations.

It is astonishing to note that several regions on the same continent may be so drastically different from one another. The respondents’ expectations for the annual rate of inflation in Eastern Europe are significantly higher than those for Western, Northern, and Southern Europe respectively. In Africa, there are also clear variations: although North and East Africa are projected to have high inflation rates, West, Central, and Southern Africa are anticipated to have significantly lower inflation rates. On the other hand, inflation projections are more consistent in certain regions (e.g., Central and North America).


The rate of inflation in the United States has been so low for such a lengthy period of time that large price increases may have given whole generations of Americans the impression that they were being transported back in time to a time when inflation was far higher. Between the beginning of 1991 and the end of 2019, the average monthly year-over-year inflation rate was approximately 2.3%, and it only exceeded 5% a total of four times over that span of time. The majority of people in this country believe that the most important problem our country faces right now is inflation.

In a similar fashion, the annual inflation rate in Canada hit 8.1% in the month of June. The increasing cost of fuel was the primary factor that drove this increase in the rate of inflation. With the unemployment rate is at an all-time low, widespread labor shortages are occurring, and wage pressure is growing which may contribute to further inflation. The result of this trend is that national labor markets are now marked by a high degree of competition.

As a direct result of the surging demand, businesses are raising their prices in order to compensate for the increased costs of both inputs and labor. Interestingly, however, despite the fact that housing prices went up by 7.1% in June, this was the first month-over-month decline in this sector since August 2019 according to Statistics Canada. This reflected the decline in real estate commissions as home prices eased in response to rising interest rates.

In point of fact, the Bank of Canada increased its key interest rate by a full percentage point in an effort to put a stop to growing inflation. This increase in rates was the largest seen in over 20 years. Nonetheless, the Governing Council was still of the opinion that there will be a need for additional rate hikes in the relatively close future. According to the official declaration, “the Governing Council is steadfast in its commitment to price stability and will continue to take actions as necessary to reach the 2 % inflation objective.” It is predicted that the announcement concerning the target overnight rate will take place on September 7th, 2022. In addition, the Bank of Canada is planning to provide its next comprehensive economic and inflation projection on October 26, 2022.


Rising prices and interest rates make optimism challenging. Nonetheless, there are still numerous market optimism-inducing factors. First, it is essential to recognize that the majority of the current economic uncertainty is not structural, as was the case in 2008, but rather the result of individual anomalies. The lasting consequences of the COVID-19 pandemic have been a major contributor to inflation, and it is anticipated that these effects will diminish over time.

In Ontario, due to the persistent housing shortage in the area and high immigration numbers, homeowners and real estate investors can expect their properties to maintain their value – Ontario had the biggest gap in the country between available homes and potential buyers as of July 2022. The population of Ontario is growing more quickly than new homes can be built, even though people want to live there.

While inflation may remain a problem for some time, the housing market has been incredibly resistant in Canada so far, especially in high-demand cities and areas in Ontario. Interest rate hikes will slow demand somewhat, but there are a whole generation of first-time homebuyers waiting to get in to the market, keeping a reasonable floor to any prices. Inflation hurts, but real estate has traditionally been an excellent hedge against increasing prices – that will not change anytime soon.

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