Interest Rate Hikes vs. Inflation Rate, by Country
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Interest Rate Hikes vs. Inflation Rate, by Country

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graphic comparing interest rate hikes with inflation in various countries

Interest Rate Hikes vs. Inflation Rate, by Country

Imagine today’s high inflation like a car speeding down a hill. In order to slow it down, you need to hit the brakes. In this case, the “brakes” are interest rate hikes intended to slow spending. However, some central banks are hitting the brakes faster than others.

This graphic uses data from central banks and government websites to show how policy interest rates and inflation rates have changed since the start of the year. It was inspired by a chart created by Macrobond.

How Do Interest Rate Hikes Combat Inflation?

To understand how interest rates influence inflation, we need to understand how inflation works. Inflation is the result of too much money chasing too few goods. Over the last several months, this has occurred amid a surge in demand and supply chain disruptions worsened by Russia’s invasion of Ukraine.

In an effort to combat inflation, central banks will raise their policy rate. This is the rate they charge commercial banks for loans or pay commercial banks for deposits. Commercial banks pass on a portion of these higher rates to their customers, which reduces the purchasing power of businesses and consumers. For example, it becomes more expensive to borrow money for a house or car.

Ultimately, interest rate hikes act to slow spending and encourage saving. This motivates companies to increase prices at a slower rate, or lower prices, to stimulate demand.

Rising Interest Rates and Inflation

With inflation rates hitting multi-decade highs in some countries, many central banks have announced interest rate hikes. Below, we show how the inflation rate and policy interest rate have changed for select countries and regions since January 2022. The jurisdictions are ordered from highest to lowest current inflation rate.

JurisdictionJan 2022 InflationMay 2022 InflationJan 2022 Policy RateJun 2022 Policy Rate
UK5.50%9.10%0.25%1.25%
U.S.7.50%8.60%0.00%-0.25%1.50%-1.75%
Euro Area5.10%8.10%0.00%0.00%
Canada5.10%7.70%0.25%1.50%
Sweden3.90%7.20%0.00%0.25%
New Zealand5.90%6.90%0.75%2.00%
Norway3.20%5.70%0.50%1.25%
Australia3.50%5.10%0.10%0.85%
Switzerland1.60%2.90%-0.75%-0.25%
Japan0.50%2.50%-0.10%-0.10%

The Euro area has 3 policy rates; the data above represents the main refinancing operations rate. Inflation data is as of May 2022 except for New Zealand and Australia, where the latest quarterly data is as of March 2022.

The U.S. Federal Reserve has been the most aggressive with its interest rate hikes. It has raised its policy rate by 1.5% since January, with half of that increase occurring at the June 2022 meeting. Jerome Powell, the Federal Reserve chair, said the committee would like to “do a little more front-end loading” to bring policy rates to normal levels. The action comes as the U.S. faces its highest inflation rate in 40 years.

On the other hand, the European Union is experiencing inflation of 8.1% but has not yet raised its policy rate. The European Central Bank has, however, provided clear forward guidance. It intends to raise rates by 0.25% in July, by a possibly larger increment in September, and with gradual but sustained increases thereafter. Clear forward guidance is intended to help people make spending and investment decisions, and avoid surprises that could disrupt markets.

Pacing Interest Rate Hikes

Raising interest rates is a fine balancing act. If central banks raise rates too quickly, it’s like slamming the brakes on that car speeding downhill: the economy could come to a standstill. This occurred in the U.S. in the 1980’s when the Federal Reserve, led by Chair Paul Volcker, raised the policy rate to 20%. The economy went into a recession, though the aggressive monetary policy did eventually tame double digit inflation.

However, if rates are raised too slowly, inflation could gather enough momentum that it becomes difficult to stop. The longer high price increases linger, the more future inflation expectations build. This can result in people buying more in anticipation of prices rising further, perpetuating high demand.

“There’s always a risk of going too far or not going far enough, and it’s going to be a very difficult judgment to make.” — Jerome Powell, U.S. Federal Reserve Chair

It’s worth noting that while central banks can influence demand through policy rates, this is only one side of the equation. Inflation is also being caused by supply chain issues, a problem that is more or less outside of the control of central banks.

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Agriculture

Which Countries Produce the Most Wheat?

Global wheat production is concentrated in just a handful of countries. Here’s a look at the top wheat-producing countries worldwide.

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Visualizing Global Wheat Production by Country (2000-2020)

Wheat is a dietary staple for millions of people around the world.

After rice and corn (maize), wheat is the third most-produced cereal worldwide, and the second-most-produced for human consumption. And considering wheat’s importance in the global food system, any impact on major producers such as droughts, wars, or other events, can impact the entire world.

Which countries are the largest producers of wheat? This graphic by Kashish Rastogi visualizes the breakdown of 20 years of global wheat production by country.

Top 10 Wheat Producing Countries

While more than 80 different countries produce wheat around the world, the majority of global wheat production comes from just a handful of countries, according to data from The Food and Agriculture Organization of the United Nations (FAO).

Here’s a look at the top 10 wheat-producing countries worldwide, based on total yield in tonnes from 2000-2020:

RankCountryContinentTotal yield (tonnes, 2000-2020)% of total (2000-2020)
#1🇨🇳 ChinaAsia & Oceania2.4 B17.0%
#2🇮🇳 IndiaAsia & Oceania1.8 B12.5%
#3🇷🇺 RussiaAsia & Oceania1.2 B 8.4%
#4🇺🇸 U.S.Americas1.2 B 8.4%
#5🇫🇷 FranceEurope767 M 5.4%
#6🇨🇦 CanadaAmericas571 M 4.0%
#7🇩🇪 GermanyEurope491 M3.5%
#8🇵🇰 PakistanAsia & Oceania482 M3.4%
#9🇦🇺 AustraliaAsia & Oceania456 M3.2%
#10🇺🇦 UkraineEurope433 M3.1%

China, the world’s largest wheat producer, has yielded more than 2.4 billion tonnes of wheat over the last two decades, making up roughly 17% of total production from 2000-2020.

A majority of China’s wheat is used domestically to help meet the country’s rising food demand. China is the world’s largest consumer of wheat—in 2020/2021, the country accounted for approximately 19% of global wheat consumption.

The second-largest wheat-producing country is India. Over the last two decades, India has produced 12.5% of the world’s wheat. Like China, India keeps most of its wheat domestic because of significant food demand across the country.

Russia, the world’s third-largest wheat producer, is also the largest global exporter of wheat. The country exported more than $7.3 billion worth of wheat in 2021, accounting for approximately 13.1% of total wheat exports that year.

Russia-Ukraine Impact on Global Wheat Market

Because Russia and Ukraine are both significant global wheat producers, the ongoing conflict between the two countries has caused massive disruptions to the global wheat market.

The conflict has had an impact on adjacent industries as well. For instance, Russia is one of the world’s major fertilizer suppliers, and the conflict has led to a global fertilizer shortage which could lead to food shortages worldwide.

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3 Reasons for the Fertilizer and Food Shortage

Bad weather, the war in Ukraine, and a shortage of fertilizer have led to fears of a global food crisis. Here are three factors you should know.

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3 Reasons for the Fertilizer and Food Shortage

This was originally posted on Elements. Sign up to the free mailing list to get beautiful visualizations on natural resource megatrends in your email every week.

Bad weather, the Russian invasion of Ukraine, and a shortage of fertilizer have led to fears of a global food crisis.

This infographic will help you understand the problem by highlighting three key factors behind the mounting food crisis.

#1: The Fertilizer Shortage

Since the beginning of the Russian invasion of Ukraine in February 2022, the war has disrupted shipments of fertilizer, an essential source of nutrients for crops.

Russia is the world’s top exporter of nitrogen fertilizer and ranks second in phosphorus and potassium fertilizer exports. Belarus, a Russian ally also contending with Western sanctions, is another major fertilizer producer. In addition, both countries collectively account for over 40% of global exports of the crop nutrient potash.

Here are the top 20 fertilizer exporters globally:

RankCountryExports Value (Billions in USD)
#1🇷🇺 Russia$12.5
#2🇨🇳 China $10.9
#3🇨🇦 Canada$6.6
#4🇲🇦 Morocco$5.7
#5🇺🇸 United States$4.1
#6🇸🇦 Saudi Arabia $3.6
#7🇳🇱 Netherlands$2.9
#8🇧🇪 Belgium$2.6
#9🇴🇲 Oman$2.6
#10🇶🇦 Qatar$2.2
#11🇩🇪 Germany$1.5
#12🇮🇱I srael$1.5
#13🇪🇬 Egypt$1.5
#14🇱🇹 Lithuania$1.4
#15🇩🇿 Algeria$1.4
#16🇪🇸 Spain$1.3
#17🇯🇴 Jordan$1.3
#18🇵🇱 Poland$1.2
#19🇲🇾 Malaysia$1.0
#20🇳🇬 Nigeria$1.0

The main destination of fertilizer exports from Russia are large economies like India, Brazil, China, and the United States.

However, many developing countries—including Mongolia, Honduras, Cameroon, Ghana, Senegal, and Guatemala—rely on Russia for at least one-fifth of their fertilizer imports.

Furthermore, the war intensified trends that were already disrupting supply, such as increased hoarding by major producing nations like China and sharp jumps in the price of natural gas, a key feedstock for fertilizer production.

#2: Global Grain Exports

The blockade of Ukrainian ports by Russia’s Black Sea fleet, along with Western sanctions against Russia, has worsened global supply chain bottlenecks, causing inflation in food and energy prices around the world.

This is largely because Russia and Ukraine together account for nearly one-third of the global wheat supply. Wheat is one of the most-used crops in the world annually, used to make a variety of food products like bread and pasta. Additionally, Ukraine is also a major exporter of corn, barley, sunflower oil, and rapeseed oil.

ProducerGrain Exports in Million Tons (MT)
🇺🇸 United States93MT
🇷🇺 Russia & 🇺🇦 Ukraine87MT
🇦🇷 Argentina 56MT
🇪🇺 EU50MT
🇧🇷 Brazil44MT
Other87MT

As a result of the blockade, Ukraine’s exports of cereals and oilseed dropped from six million tonnes to two million tonnes per month. After two months of negotiations, the two countries signed a deal to reopen Ukrainian Black Sea ports for grain exports, raising hopes that the international food crisis can be eased.

#3: Recent Food Shortages

Besides the war in Ukraine, factors including the COVID-19 pandemic and climate change resulted in nearly one billion people going hungry last year, according to United Nations.

France’s wine industry saw its smallest harvest since 1957 in 2021, with an estimated loss of $2 billion in sales due to increasingly higher temperatures and extreme weather conditions.

Heat, drought, and floods also decimated crops in Latin America, North America, and India in recent months. Between April 2020 and December 2021, coffee prices increased 70% after droughts and frost destroyed crops in Brazil.

In the face of multiple crises, the World Bank recently announced financial support of up to $30 billion to existing and new projects in areas such as agriculture, nutrition, social protection, water, and irrigation.

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