Countries With The Highest Interest And Inflation Rates

But this is a balancing act, since the desire is also to avoid triggering too much economic damage and raising the spectre of recession. In Australia, fears abounded for months that the RBA had gone too far in lifting the cash rate from .1% to 4.35% in little more than eighteen months and that the ‘narrow landing’ that previous governor, Philip Lowe, referred to had been overshot. Consumer confidence remains sluggish, although there are signs of improvement, and as many economists like to point out, Australia is technically in a per-capita recession.

The consequence of failing to achieve these goals is a destabilising period of spiralling prices. Against such a backdrop, households and businesses find it harder to balance their books, struggle with payments, and generally plan for their futures.

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Fortunately, signs have started to emerge in recent months that policy-setters worldwide are starting to get the better of the inflation issue and that a recession in Australia may be avoided. Inflation is sticky, that is for sure, but it’s coming down.

In the US, for example, following an aggressive period of interest rate hikes, the annual rate on inflation rose to a moderate 2.3% in September 2024, down from 2.5% in August. It prompted the US Federal Reserve to cut interest rates by 50 basis points in September.

Similarly, in the UK, there are also signs that the interest rate rises imposed by the Bank of England since the end of 2021 are starting to affect soaring inflation levels.

From its 11.1% peak in October 2022, the UK’s inflation figure as measured by the country’s official data compiler, the Office for National Statistics (ONS), fell to 2.2% in the year to August 2024—the same rate as in July. This is just off the government’s 2% inflation target as imposed on the Bank, but it suggests that runaway inflation levels are now firmly in the rear-view mirror.

Here in Australia, we experienced our own ongoing and consecutive rate rises in an attempt to curb inflation; interest rates increased by a total of 4.35 percentage points since May 2022. The Reserve Bank of Australia has chosen to hold the cash rate steady at its most recent September meeting and has suggested that rate cuts are unlikely to occur in the second half of this year as originally thought due to inflation proving stickier than expected. Inflation in Australia peaked at 7.8% in December 2022.

While headline annual inflation now sits at 3.8% in Australia, the RBA would like to see inflation back around 2% to 3%.

Across the 40 or so countries that make up the Organisation for Economic Co-Operation and Development (OECD), it’s a mixed picture.

Turkey’s inflation figure was 61.78% for the year to July 2024, down from 71.6% in June. By September it had abated slightly to 49.38%. Other high OECD members that previously recorded double-digit CPI, have managed to tame inflation to some degree over the past 12 months, including Colombia, with an inflation figure of 5.81% (down from 11.43% a year prior), Hungary at 3.4% (down from 10.1%), Poland at 4.9% (down from 10.1%) and the Slovak Republic at 2.8% (previously 9.9%).

Although Turkey’s inflation figure is undoubtedly high—largely thanks to the devaluation of its national currency, the lira—it remains dwarfed by fellow G20 member, Argentina.

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Turkey, Argentina and Australia are all G20 nations, a bloc of countries that represent the world’s major economies and that account for 85% of global financial output. Consumer prices in Argentina rose by 113% in the year to July 2023, according to the country’s central bank, before hitting 211.4% by the end of last year. But more was to come, with CPI reaching a record high of 292.2% in April. Since then, inflation has eased slightly to 237% in the year to September 2024.

Inflation in Argentina has been massively elevated since the country’s economy descended into crisis in 2018, when its foreign-debt obligations expanded to unsustainable levels and the peso collapsed against the US dollar. When libertarian President Javier Milei came to power he promised to end the economic crisis, but the country’s CPI continues to run hot. Nearby Venezuela, where the inflation rate has nudged 400% in 2023 following years of economic underperformance and social upheaval, has an inflation rate of 25.75%.

The Argentinian experience might appear extraordinary, but there are a handful of other countries outside the G20 where rising prices have also had an impact.

Zimbabwe, for example, saw its annual consumer price inflation rate skyrocket to around 170% in June of 2023, according to the IMF, stoked by a sharp depreciation in the Zimbabwean dollar. Six months later it was back down to 26.5% and but has risen slightly to 57.5% as of September 2024. While it’s not unusual for African nations to post double-digit inflation figures, one country—South Sudan—stands out from the rest with an inflation rate of 107% as of September 2024.

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The prolonged period of high and stickier-than-expected inflation worldwide has resulted in surging interest rates—one of the few financial levers that central banks have at their disposal to put a dampener on rising prices.

At the time of writing (October 2024), the Reserve Bank of Australia’s cash rate—which influences borrowing rates across the economy—stands at 4.35% after 14 hikes. The rate that borrowers pay on their home loans is set even higher than this by the banks, with most variable mortgages now around 6% or more in many cases.

For many Aussie households, the current elevated cost of borrowing is taxing; yet the RBA continues to target an inflation rate between 2% to 3% to bring this back down to a level household spending is more accustomed to.

It’s not necessary to look too much farther afield, however, to see that things could be a good deal worse. See table 2 below.

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Take Russia, for example, which was forced to hike its key interest rate to 18% at its July 2024 meeting after its national currency fell below the psychological mark of 100 roubles to the US dollar. It’s currently even higher at 19%.

In South America, central bank rates in Brazil stand at 10.75% as of September this year. Unsurprisingly, in the face of soaring inflation, borrowing costs in Turkey are also elevated, coming in at 50%.

In war-torn Ukraine, the figure was 22% mid-year of 2023—the same as in Pakistan—but by September 2024 had lowered to 13%.

Given their surging inflation rates, it won’t be a shock to discover that both Venezuela and Argentina also share the dubious distinction of imposing some of the world’s highest interest rates on their borrowers.

The official cost of borrowing in Venezuela stands at a shade over 59%, while in Argentina the figure is 40%. Meanwhile, borrowing costs in Zimbabwe stand at 35%.

These revelations won’t ease the cost-of-living crisis for Aussies at home, but it provides a salutary reminder of the benefits of living within a relatively stable economic environment.