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Businessweek Archives

Inflation's Uneven Spread

Economic Trends


Inflation may be dormant in the U.S., but it still poses a threat in other nations. Global consumer prices rose at a blistering 23.3% pace last year, according to the International Monetary Fund. But this masks a striking divergence: Disinflation is taking deep root in the industrial nations, but prices are rising sharply in much of the developing world (chart). For instance, from 1991 through 1994, consumer price inflation fell from 4.2% a year to 2.6% in the U.S., and from 5.6% to 0.2% in Canada. Meanwhile, among those regions reporting complete 1994 data, inflation rates in both Latin America and Africa doubled during the past four years.

This dichotomy is a testimony to the power of monetary policy. Money growth is low in the industrial world, as central banks use constraint to dampen inflation. But central banks in fast-growing developing countries are more worried about fueling fast growth or propping up cash-poor state-run companies. Governments in some stagnant Third World nations are running the printing presses to pay off bureaucrats.EDITED BY MICHAEL MANDEL By Christopher Farrell

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