ON THE HORIZON: INFLATION PROJECTIONS FOR 2024 ACROSS THE GLOBE
Inflation has dominated economic conversations in recent years. As we approach the second half of 2024, this bulletin offers insights into what to expect on the inflation front worldwide. To help you prepare for the next few months, we’ll explore expert projections, examine critical trends, and discuss the potential implications for organizations.
Global inflation is on the downturn, but not out
After years of historically high inflation, many analysts are cautiously optimistic about 2024. Inflation has been cooling worldwide, raising hopes of a soft landing this year. While the sting of rising prices may not vanish entirely, major institutions forecast that the global inflation rate is on a gradual downward slope.
The International Monetary Fund (IMF) predicts global headline inflation to fall to 5.9% in 2024, down from an estimated 6.8% in 2023. This decline is attributed to various factors, including easing supply chain pressures and higher interest rates.
But the path to price stability may be bumpy. JP Morgan economists warn that core inflation, which excludes volatile food and energy prices, could remain sticky at around 3% globally in 2024.
Overall, inflation will likely ease faster than expected. While it is estimated to remain above pre-pandemic levels, a significant decrease from 2023 is anticipated.
It is important to note that the global average masks significant differences between countries and regions. Advanced economies are expected to see faster disinflation, with inflation falling by 2.0 percentage points to 2.6%. For emerging and developing economies, inflation is projected to decline by just 0.3 percentage points to 8.1%.
High-inflation economies
While growth remains a priority, high inflation will be a pressing concern for many countries in 2024. The IMF has identified 20 economies across regions likely to experience significant price increases.
Many of the world’s highest-inflation economies are concentrated in Sub-Saharan Africa, the Middle East, and Central Asia. This vulnerability can be attributed to dependence on volatile commodity prices, conflicts disrupting supply chains, and currency depreciation. These issues create a perfect storm for rising prices, squeezing household budgets and hindering economic stability.
Three volatile economies to monitor
Some economies face a delicate balancing act. It’s crucial to keep an eye on developments in Venezuela, Zimbabwe, and Sudan, which are projected to have the highest percentage change in annual inflation this year. The potential for significant volatility in these economies is high.
Venezuela
230% inflation, widespread dollarization, US oil industry sanctions
Venezuela, a Latin American country rich in oil reserves, faces a projected inflation rate of 230%—the highest in the world. But, according to El Pais, experts believe inflation in Venezuela is on a downward trend. In April 2024, the IMF notably lowered its projected inflation rate in Venezuela to 160%.
Capital Economics reports that several factors are behind Venezuela’s inflation plunge. These factors include widespread dollarization, steps to liberalize the economy, a rise in oil exports, and an easing of US sanctions on the oil industry since October 2023.
However, Venezuela’s economic outlook in the near term depends on whether US sanctions (for repressing political opposition and alleged criminal activity) are further relaxed or reimposed in April 2024.
What does our market monitoring reveal?
Our 2024 Market Monitor reports paint a picture of Venezuela navigating a volatile market. The reports consistently place the Latin American nation at Level Five on a six-level volatility scale.
Level Five signifies a labor market that heavily uses hard currencies. Salaries are widely denominated in US Dollars or Euros, and staff can legally hold bank accounts in these currencies. This dollarization protects against inflation but highlights Venezuela’s challenges in stabilizing the Bolivar, its local currency.
What steps do we recommend?
Given Venezuela’s status at Level Five on our Market Monitor, we recognize the challenges faced by organizations operating in the country. Our salary surveys also show that employers have adopted the practice of denominating salaries in US Dollars or Euros, reflecting a lack of confidence in the Venezuelan Bolivar.
In countries with Level Five volatility, the solution often sought is to change the local currency scale into one denominated in a major hard convertible currency. While this might seem straightforward, many factors must be considered before making such a big switch.
The most significant factor is assessing the prevailing labor market conditions. This involves evaluating the usefulness of local money in daily life. Is the local currency still primarily used for trading goods and services? If so, every effort should be made to maintain a pay structure based on local currency and to monitor and update this pay structure actively.
Zimbabwe
190.2% inflation, currency depreciation, newly introduced currency
Zimbabwe, a nation in Sub-Saharan Africa with immense mining potential, has been overshadowed by a persistent struggle with high inflation and currency devaluation.
The IMF projects Zimbabwe’s inflation rate to reach 190.2%. In April 2024, this forecast was significantly adjusted to 602.6%. According to Lloyds Bank’s International Trade Portal, inflation increased amidst currency depreciation, worsened by the scarcity of foreign currency in the country.
Economists note that Zimbabwe’s financial woes are deeply entrenched. Over the years, Zimbabwe has grappled with currency instability, introducing various currencies. Abandoned in 2009 and reintroduced a decade later as the Real Time Gross Settlement Dollar, the Zimbabwean Dollar, lost over 70% of its value on the official foreign exchange market since January 2024, making it one of the world’s worst-performing currencies, according to Associated Press. In addition, the US Dollar is used in more than 80% of transactions and is favored over the volatile Zimbabwean Dollar.
A recent development to watch is the introduction of the Zimbabwe Gold (ZiG), the country’s sixth attempt at a new currency since 2008. Launched in April 2024, the ZiG replaces the Zimbabwean Dollar to combat high inflation and restore confidence in the financial system. However, its effectiveness in curbing inflation is yet to be seen.
What does our market monitoring reveal?
Our monitoring of the Zimbabwean labor market and foreign exchange rates in recent months reveals a vital feature of the economy: dollarization. This is reflected in the country’s consistent ranking at Level Five on our volatility scale.
Foreign currencies, such as the US Dollar and Euro, are widely used at this level. Salaries are commonly denominated in these currencies, and staff can legally hold Dollar or Euro bank accounts.
What steps do we recommend?
Zimbabwe’s Level Five status on our Market Monitor presents challenges similar to Venezuela’s. Our recent salary surveys show a widespread shift towards US Dollar-denominated salaries, highlighting the declining trust in the local currency.
A Level Five designation signifies a highly volatile labor market, often prompting organizations to consider a switch to a hard currency like the US Dollar. However, such a transition requires careful consideration of several factors.
The most critical factor is the usability of the local currency in daily transactions. Does it remain the primary currency for buying goods and services? If so, prioritizing a pay structure based on the local currency with regular monitoring and adjustments is vital.
Sudan
127.3% inflation, currency depreciation, continuing armed conflict
Sudan, a country situated in Sub-Saharan Africa, has long been an agricultural hub. Additionally, the nation is endowed with natural resources, including gold and oil, which hold significant economic potential.
The IMF projects Sudan to face an inflation rate of 127.3% in 2024. In April this year, this projection was slightly decreased to 114.6%. This severe inflation is driven by multiple factors, including political instability, economic mismanagement, and the depreciating value of the Sudanese Pound by at least 50%.
The primary driver of Sudan’s inflationary spiral is the power struggle between Sudan’s two leading generals and their respective military factions since April 2023. This conflict has led to widespread instability, severely hampering economic activities and disrupting supply chains.
What does our market monitoring reveal?
Our monitoring of foreign exchange rates in Sudan reveals a volatile economic environment. In early January 2024, the market was characterized by rapidly evolving conditions at Level Three, indicating significant exchange rate movements of over 40% within six months. This suggested that the Sudanese pound was already experiencing notable fluctuations.
By January 15, the conditions had shifted to Level Four, signaling a sudden, unexpected social or economic event. The currency underwent severe devaluation of 50% or more within six months, reflecting a drastic and rapid decline in the Sudanese pound’s value. Responses from salary survey comparators in Sudan have also been disjointed and unclear, reflecting a chaotic economic environment with no clear or consistent strategy to address the crisis.
What steps do we recommend?
Organizations operating in Sudan should monitor economic indicators closely, particularly currency devaluation. Over the past six months, Sudan’s currency devaluation has reached 65.1%. Nevertheless, many organizations still denominate salaries in the local currency.
It is critical to regularly review salaries to manage them effectively in volatile environments like Sudan. Using data from the latest Sudan salary survey, organizations should create a focused group of comparators that includes market leaders in salary practices, employers with adaptable pay policies, and companies that predominantly pay salaries in the Sudanese Pound.
Lastly, update your organization’s salary scales three times a year based on your focused group of comparators. This approach involves trimestral adjustments to the pay scale, forecasting currency movements for the upcoming quarter, and implementing a stabilization allowance alongside the revised salaries.
How Birches Group’s Market Monitor can help
Stay informed about volatile economies worldwide and identify potential disruptions before they escalate. Sign up to receive our Market Monitor, a PDF report delivered to your inbox every two weeks. Our team examines labor market conditions and economic indicators across over 150 countries, helping you spot countries that require closer attention.
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Reach out to Birches Group today
Does your organization have a Special Measures Policy for unforeseen events like hyperinflation? Crafting such a policy requires expertise. Our consultants can guide you through the process, ensuring your policy is effective. Contact us to discuss your specific needs and get started on creating a Special Measures Policy that fits the local conditions of your markets.
Carla is a part-time copywriter on our marketing team in Manila. Before shifting to freelance writing in 2020, she worked as a marketing and communications specialist at the offices of EY and Grant Thornton. She has written about HR and career development for Kalibrr.
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