Deflating the myths of inflation

Factors that influence inflation and cost of living are varied but identifying genuine ones can help policymakers prioritise key solutions.

In a survey at the recent World Economic Forum meet, most respondents ranked a cost-of-living crisis as the most severe global risk over the next two years with inflationary pressures disproportionately hitting those who can least afford it.

While inflation and cost-of-living increases are often used interchangeably, they are different though closely related. While inflation is often blamed for all price increases, this is not always the case.

For example, supply chain issues and labour shortages, not inflation, help to increase prices due to the limited availability of many goods and services. Also, higher wages don’t result in higher inflation. The former is a symptom of the latter rather than a cause.

The prices of food items were on the rise even before the pandemic and the Ukraine war only exacerbated this. Although global supply chains have adapted somewhat, food price increases have outpaced general inflation with the FAO Price Index hitting its highest level in March 2022.

Managing inflation will be key to protecting societies from cost-of-living pressures. But what are the common myths surrounding inflation that policymakers must first tackle towards effective solutions?

Have these myths skewed existing programmes and if so what remedial measures would work best? Could past myths turn out to be present-day realities? 360info examines the fallacies and facts surrounding inflation and how policies can work better.

REALITY CHECK

Japan’s inflation rate has jumped to a fresh 41-year high as businesses pass on higher costs to their customers. Core consumer prices for last month rose by four percent from a year earlier, double the Bank of Japan’s target level.

Inflation in Argentina came in at 102.5 percent in the 12 months to February, exceeding the symbolic triple-digit mark and reaching a new 32-year high. Latin America’s third-largest economy saw inflation grow 13.1 percent since the beginning of the year.

Headline inflation is falling in many countries but core inflation rates have been revised upwards, says the International Monetary Fund in urging central banks to continue their efforts.

China’s annual consumer inflation slowed to the lowest rate in a year in February as consumers remain cautious despite the abandonment of strong pandemic controls late in 2022.

BIG IDEAS

Quote attributable Juliana French & Sharon Koh Geok May, Monash University Malaysia:

“Stressed consumers on a spending spree are overlooked as a possible inflation cause. Psychological or emotional factors constitute a large part of consumers’ buying behaviour.”

Quote attributable to Northumbria University researchers:

“A Universal Basic Income is no more or less inflationary than anything else that raises incomes. Its impact would depend on whether the economy is at full employment, whether taxes are raised to pay for the scheme and various other factors.”

Quote attributable to Andrei Kwok, Monash University Malaysia

“Except for COVID-19 as an anomaly, while there is a correlation between supply chain disruption and inflation, the former is not the primary contributor. The impact of supply chain disruption on core consumer prices is, in fact, not significant.”

Originally published under Creative Commons by 360info™.

Editors Note: In the story “Cost of living” sent at: 20/03/2023 11:04.

This is a corrected repeat.