Unless governments act, the rising cost of living will come at a heavy price

Unless governments act, the rising cost of living will come at a heavy price

There is no escaping the fact that after a long period in which price stability was a characteristic of the global economy, we have entered a new and volatile era of high inflation and possible economic slowdown.
Given the unique set of circumstances driving this rise in the cost of living, it is reasonable to expect that it will continue to be a major feature of the world’s economies for the foreseeable future.
Unfortunately, there is a generation of political leaders and businessmen who have no experience living and working in such an environment, with all the risks involved. After all, this is the first time in living memory that this phenomenon was the result of an unholy combination of a global pandemic and a major war affecting the supply chain.
All segments of global society are upset by the rising cost of living, but it hits hardest those who are already worse off, both in developed and developing countries. In its most extreme form, it deprives people of the most basic commodities, including food, shelter, education and health, forcing them to make painful choices that have immediate and long-term effects on their well-being, including life expectancy.
If not dealt with quickly, this crisis will not only lead to human suffering and loss of potential but can also lead to social unrest and even social revolution. There are clear and tangible difficulties associated with unchecked price hikes, but rampant inflation also leaves psychological scars, as a result of the uncertainties it creates, and with it widespread and chronic concerns for individuals, families and businesses as well.
In the more than two and a half years since the world was hit by an unprecedented pandemic, some assumptions of global economic stability have been thrown out of the window. Governments with conservative instincts have pumped billions of coins into their economies to prevent a total meltdown, and then into their COVID-19 testing and immunization programmes, and rightly so. For poor countries, this was not an option, and many suffered not only human but economic losses as a result of faltering manufacturing, trade and tourism activities, without the social safety nets and benefits enjoyed by their citizens in rich countries. .
Rising energy prices accelerated inflation in many countries even before the Russian invasion of Ukraine, and inflation has intensified since the conflict began in February, creating great uncertainty about gas and food supplies to Europe and causing prices for goods and services to soar. out of control.
This episode of inflation is not a sign of high rates of economic growth. Rather, it is the result of shortages caused by unusual circumstances, with a real fear that it could lead to stagflation – a harmful combination of stagnant growth and inflation caused by pressures on the supply side.
Inflation was once described as the harshest tax of all, because it disproportionately affects the poor. The global survey by World Bank and International Monetary Fund researchers found that individuals who are considered extremely poor have a 10.5 percent higher likelihood of naming inflation as a greater concern than those who consider them to be rich, because it almost immediately reduces their quality of life.
First of all, those who are economically worse off have to spend a greater proportion of their income on basic commodities such as food and energy, which makes them more vulnerable to higher prices.

Given the unique set of circumstances driving this rise in the cost of living, it is reasonable to expect that it will continue to be a major feature of the world’s economies for the foreseeable future.

Yossi Meckelberg

In addition, those who are richer are more willing to protect themselves from inflation because they own diverse assets, and in times of austerity they can draw on their savings until the dark clouds of hardship have passed. This privilege is not granted to those who live day by day and who struggle in the best of times to provide for themselves and their families.
Social safety nets and benefits are more generous in some countries than in others, but inflation is eroding their value. Worse, if the expected recession materializes, it is likely to be followed by tighter fiscal policies, which, again, harm the poor and lower middle classes who rely more on public services, including education and health, and even on subsidized food or programs that Facilitate economic and social mobility.
There is no expectation that the global economy will emerge from this inflationary crisis anytime soon, as the COVID-19 pandemic is not over yet, and new variables may create more economic pressures. In the meantime, no end in sight to the war in Ukraine.
The International Monetary Fund predicts that the next two years will be difficult, with a real risk of a full-blown recession. In the midst of these crises, the issue of climate change has been pushed to the sidelines, but, as recent heat waves in Europe have demonstrated, the need to deal with their devastating consequences is more urgent than ever – and these consequences, once again, hurt the most vulnerable in our societies.
If governments and international organizations cannot, or cannot, live up to the challenge posed by the gap between the rising cost of living and lagging incomes, this increases the risk of social unrest, particularly in countries with poor governance and inadequate governance.
According to the Verisk-Maplecroft Index of Civil Disorder, the combination of price hikes and government cuts has already increased levels of civil unrest in major emerging economies. This could lead to a snowball effect on political instability, hurting investor confidence and in turn leading to worse economic conditions.
Given the very special circumstances and causes of the current rise in the cost of living, and because inflation is at its highest level in decades, governments need to take urgent and coordinated action to contain it.
Tightening of monetary policies was expected through sharp increases in interest rates, but this also risks throwing countries deep into recession, as it increases the cost of borrowing and housing, which could eventually push many millions of people below the poverty line while also. Make them homeless.
Hence, both monetary and fiscal policies should be implemented sensitively by applying mechanisms to protect those measures which may harm the most. Moves to contain inflation must avoid harming people already struggling to survive and must not jeopardize the future of the younger generation. Otherwise, prices may stop rising but the long-run social costs will be immeasurably dire.

• Yossi Meckleberg is Professor of International Relations and Associate Fellow in the Middle East and North Africa Program at Chatham House. He is a regular contributor to international written and electronic media. Twitter: @YMekelberg

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