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Nations dogged by high inflation

The pace at which the cost of goods and services rise is known as inflation. It erodes the purchasing power of a nation’s currency and can be caused by either one or all of these: excess demand, high production cost and rising oil prices (it makes goods’ transportation expensive). It can also be caused by an increase in the amount of money circulating in the system on account of the central bank of a nation reducing repo rates (the rate at which central banks lend to commercial banks) to spur spending or printing of more currency to repay debts or bridge budget deficits.

Typically inflation leads to further price rise as people tend to buy more anticipating a brisk upswing in costs. But too high rates can throw an economy into disarray. There are quite a few nations which have been seeing double and triple digit inflation for over a while now that has created a deep recession. Interestingly, being major oil exporters, it is lower oil prices that has caused inflation in these nations and not vice versa.

Here’s a quick glance at such nations battling high inflation:

Venezuela (8,900 percent in the past 12 months)

The oil-rich nation, where the commodity contributes about 95 percent of the GDP, naturally stumbled when global prices tanked. With the oil money, which was used to fund the social sector and food subsidies, depleting fast, the nation finds it tough to keep prices in check. It is also findings it difficult to import food and other essential items like before leading to a shortage and a further spike in price. With hyperinflation, savings of the general populace has been wiped out and incentives to invest is very little leading to a protracted recession. Over 80 percent of the country now lives in poverty unable to afford basic food and medicine. Meanwhile, the government has also hit the limit to print more of its official currency the Bolivar, whose value has already plumbed pitiful depths, to repay debt.

South Sudan (55.6 percent in March 2018 year-on-year)

The short history of the youngest nation in the world is marred with double- and triple-digit inflation which has robbed people of their ability to afford even the minimum food basket. Massive spends on war with Sudan coupled with reduced production of crude oil because of low oil prices has caused a yawning fiscal deficit. To contain it, the government has been printing additional currency which in turn has led to unbridled inflation and devaluation of its currency. The inflation rate peaked to 550 percent year on year in September 2016.

Suriname (reached 77 percent last September)

Inflation shot through the roof in the smallest South American nation with the smallest population in the world owing to the so-called triple commodity shock – plunging gold and oil prices coupled with the shutting down of the only bauxite mine. Those had underpinned the economy majorly. People took to the streets last year in the nation’s capital to protest against the unforeseen water and electricity charge hikes. So far, the central bank of the nation has attempted to contain the runaway inflation with a tighter monetary policy but it has done little to help.

Angola

Another African country on the list on account of its heavy dependence on oil. When prices plunged, export income took a hammer blow since the liquid commodity comprise about 95 percent of it. However, the economy looks upbeat from here as inflation rate is expected to come down with tight controls on import and focus on lowering budget deficit and domestic production, especially of food. Nevertheless it is expected to remain in double digits for the next couple of years.

Nigeria (13.34 percent in March 2018 year-on-year)

Even though inflation rate is gradually declining, rebounding fuel costs countering a reduction in food prices means it is still a sticky situation. A civil war in the nation (circa 1970) coupled with restrictions on the import (circa 1990 due to international sanctions on it) leading to shortage of essential commodities resulted in the inflation in the first place.

Liberia

Despite an economic upturn, inflation is expected to hover around 10 percent in the next couple of years. The Ebola crisis, massive drop in export revenues and increase in import costs, the ongoing withdrawal of the UN peacekeeping force and occasional political turmoil gave rise to bloated debts, depreciating currency and subsequent inflation.