What has happened to inflation in the world?

As is well known, the pandemic brought with it a series of secondary effects that have significantly affected the global economy. There is no doubt that the biggest of these has been the constant and aggressive increase in prices in practically all the countries of the world. Regarding the financial environment, inflation has been the predominant factor in the decisions of investors and monetary authorities.

In this sense, we must begin by sizing the levels reached by inflation. The United States had had a long period with stability in price increases, in more than 35 years they had not seen levels higher than 6.2% per year, the average inflation in this period was around 2.8%. In the third quarter of 2022, the maximum level recorded was 9.1%. For its part in England, the latest data published is 10.00%, historically its inflation had been 2.6% on average in the last 20 years. Japan is an extreme case, since average inflation in that country is close to 0%, while today it is 3.7%. And Mexico is no exception, the levels of inflation that have been observed in the country in recent years have been the highest in 20 years.

For the monetary authorities, inflation is a priority, several central banks have the objective of price stability and at the same time the growth of the economy. Today both objectives are in conflict in the Euro zone and we are faced with an economy that grows little and faces high inflation. Central banks face a difficult challenge since the way to combat inflation is to increase rates and this intrinsically harms economic expansion. Likewise, it is observed that, in the United States, the market is concerned about the harmful effects that the economy will have due to such an aggressive increase in rates, more than 3.50% and increasing in the last 9 months. With regard to Mexico and in particular the Bank of Mexico, its stance regarding inflation has been strict, it has constantly increased rates since mid-2021. At the same time, the Mexican economy has shown a good performance since the United States, the main trading partner, has shown great dynamism after the pandemic.

However, if a review is made from the beginning of this cycle of price increases, it will be possible to find the arguments that various investors use to affirm that inflation has reached its maximum. Since the outbreak of the pandemic, social distancing measures have severely disrupted production chains globally, which has reduced production. On the other hand, the economic aid offered by some governments, together with the decrease in spending that occurred during the days of confinement, generated a significant increase in the demand for goods and services since the end of 2020. The war between Russia and Russia will have to be included. Ukraine which shot up the price of natural gas and various grains. Today, 18 months after the start of the price escalation, a decrease in inflation rates has been observed, the production chains are practically 100% recovered and consumption begins to lose strength. In Europe, agreements that promote trade between the countries involved in the war begin to be generated.

Although the data available to date open the door to an environment with lower inflation, it is known that nothing is certain and everything can change from one day to the next. However, it should be noted that the situation experienced in the last two years due to the pandemic and its side effects, which also affected the economy of families, has led many people to reflect on what to do and how to protect their money awakening in them a genuine interest in the investment. You have to remember that the best time to invest will always be today. The financial system in the country offers many alternatives to do so and investment funds are one of them. People only have to approach the institution of their choice and with the help of an adviser, find the best option to invest since there are funds that do not require much capital to start.

*The author is VP of Structured Products at BBVA Asset Management.

juanernesto.gonzalez@bbva.com