In 2021, consumer prices rose 7 percent over the previous year. This was the largest rise in consumer costs in a 12-month period of time since 1982. Why are prices increasing, especially in relation to global food prices? Is the current inflationary episode linked with the pandemic Is aggressive monetary policies the main culprit for inflation? What does inflation do to the world and to the poor? Can it be controlled
Alastair Smith is an international expert on global sustainable development issues. In this exclusive interview, he tries to answer these questions. Truthout. Smith is a Senior Teaching Fellow at the University of Warwick, England, and a Research Associate at the Global Drugs Policy Observatory of Swansea University (Wales).
C.J. Polychroniou – Inflation has reached surprising levels in 2021. The U.S. experienced one of the greatest increases, and it looks like it is likely to continue climbing in 2022. Why is inflation occurring now and how is it affected in the event of a pandemic?
Alastair Smith: Inflation appears to have been driven by trade transparency and a growing trade gap in recent decades. With a specific increase starting in 2020, however a limited contraction of importsDuring the COVID pandemic. This deficit was primarily driven by an increase in industrial supplies, materials, mainly petroleum products, metals, and other products. A major reason for the increasing expense has been the increase in international shipping and domestic transport costs. The Baltic Dry Index (a measure measuring shipping costs) has risen significantly while gasoline prices have risen and truck driver shortages are driving up the cost to transport services. Therefore, the legacy of the pandemic — currently elongated by sluggish vaccination in countries without a critical mass of immunity — has and is predicted to continue driving inflation into 2022.
Global food prices have risen substantially in the last year. What are the main reasons for the rise in global food prices?
It’s important to select our dataset for analysis critically and I don’t believe we currently have the right balance.
The dominant narrative from the UN Food and Agricultural Organization, Governments, and the media, and therefore wider public understanding, is that nominal prices have increased significantly in recent years. Headlines highlight that “Global food prices rose ‘sharply’ during 2021,” on the basis that the FAO’s “Food Price Index, which tracks monthly changes in international prices, averaged 125.7 points — a 28.1 percent increase over 2020.”
However, the FAO also maintain a separate price index, where “nominal” prices are converted into “real” prices. This index shows the relative costs of food over time and in the context wider inflationary pressures. The real price index is different from the nominal price index. It shows that international food prices fell between the 1960s, and the turn of this millennium. However, they started to rise again in 2000. Since then they have been increasing in some way or another. This means that in Real termsFood has not only become more expensive in the last year, but it is also becoming more expensive. food is less accessible in 2022It has never been more important in modern history.
We need to focus on the factors that drive international real price increases. This includes inflationary pressures in the food sector, but also wider costs of living. Despite all our socio-technical advancements, food production remains vulnerable to unpredictable and unpredicted weather. This is exacerbated by the recent La Niña episode driving dryer weather in most food exporting countries. There has also been a steady pressure on land use created by demand for biofuels — an indirect consequence of the climate emergency. Another pre-COVID shock was that of the African Swine Fever, which led to price increases in many protein markets. A further significant, more recent pressure has been rising costs of international shipping — something that has increased the costs of all imports.
What does rising price impact on the world and the poor?
We know that households and individuals who are poorer tend to spend less. a greater proportion of their income on foodThose with more financial resources are more likely to eat well. This demonstrates the obvious truth that food is a staple consumption item, which can be understoodably prioritized by even those with lower economic capabilities. In the context of generalized inflation in food and other essentials, the poorer countries like the U.S. have to make tough choices about what level of nutrition they want and what essentials such as heating. (Context dependent). This is why we have seen increased reliance on emergency food provision in the U.S. and U.K.
In other places, we might accept the fact that malnutrition has increased since 2014 because this is largely accepted. driven by conflict, climate extremes, economic downturns and reductionsIn purchasing power for the poorest. It is being speculated that the current famine of Madagascar could be the first globally recognized case of an a climate-driven emergency. This was also criticized by other analysis. Nevertheless, the low level in economic capacity of the country means that rising prices, especially in rice markets, reduce the possibility of reducing local pressures via imports.
Do you have evidence that government spending is a factor in inflation?
The impact of government spending upon inflation would depend on the context. We’d need to consider both the magnitude and specifics of such spending, the degree of openness for any specific economy, as well as other economic variables. When other forces create the potential for inflation, government expense will be a contributor to that. In other cases where spending is depressed by larger factors, well-planned increases in government spending can be used to create a better situation. This was evident in the COVID epidemic, when even politically conservative governments used public funds to support their economy through restrictions essential to saving valuable human lives years. The devil is always in details when it comes to these matters.
What policies can you use to limit inflation? Is there any room for strategic price controls in today’s economy?
It is difficult to contain inflation. The appropriate measures will depend on the context. Interest rates are a widely used strategic price control intimately related to suppressing inflation and it’s widely anticipated these will soon begin to rise.
It has been fascinating to observe that in the U.K., we have a Tory government committed to minimizing income support of the poorest. Ironic that such elite government has been responsible to bankrolling the largest public borrow-and-spend initiative in decades. Unfortunately, there has not been an immediate response to the pandemic. cut income support and add further conditions for continued eligibility — that create further structural barriers to self-sufficiency for many of the poorest.
A more logical response for those apparently concerned with “leveling up” would have been to recognize the possibility to set a strategic price control for society to pay its constituent citizens — through the possibilities of Universal Basic Income (UBI). This would create a more flexible labor force and allow individuals the opportunity to invest in their own personal development for emerging opportunities. Flexibility would support and underpin economic restructuring, and act as a dampener for inflation caused by external costs. Such investments wouldn’t need to be funded through further debt: what we need in post pandemic 2022 is 100 percent smooth, progressive taxation, not administratively burdensome staged tax bands. (In true progressive taxation the percentage rate increases with income. It could go up to 60 percent or even 80 per cent for incomes greater than 1 million dollars. This scenario could be achieved by modern data processing power, which could allow for a continuously adjusting strategic control over the price of citizenship for each individual in our society. This kind of qualitative visioning of the future is essential for the transformation of national and international economies to more stable, stable economics that are essential to the sustainability human development on this planet.
