The war in Ukraine, the post-pandemic world, the recent lockdowns in strategic cities in China… all these factors cooperate, according to the World Bank, to underpin the poor forecasts about the increase in the cost of living on a global scale. An increase that, according to the estimates of the multilateral organization, will be extended until 2024. In addition, inflation will also exacerbate the food insecurity crisis in many countries.
“Economic process caused by the existing imbalance between production and demand, which causes a continuous rise in the prices of most products and services and a loss of the value of money to be able to acquire or use them”. This is how the Royal Academy of the Spanish Language (RAE) defines inflation.
Translating this definition into common language, we speak of the cost of living. According to the most recent World Bank projections, this will continue to rise until 2024.
The consequences of the Covid-19 pandemic; the effects of the war in Ukraine, which has pushed up energy and food prices; and even the latest confinements due to outbreaks of coronavirus in Chinese cities such as Shanghai, strategic for the economy and world trade, are some of the main causes behind the growing inflation on a global scale.
According to data provided by the multilateral organization, in nearly half of the world’s most prosperous economies, inflation is currently above 5%.
The tightening of the monetary policy of the central banks to curb the increase in inflationary rates was already present before the beginning of the Russian invasion on February 24.
However, the war at the gates of Europe, whose protagonists are two of the world’s largest exporters of basic products and energy resources, has pushed up the prices of raw materials even more, which, ultimately, has a negative translation for the pockets of citizens.
If the war in Ukraine drags on or additional sanctions continue to be imposed on Russia, prices could continue to rise and be more volatile than currently expected.
The organization also highlighted in its report that the armed conflict on Ukrainian soil is the most harmful economic factor for the world in inflationary terms since the 1970s, even above the economic crisis of 2008, which devastated a good number of the major global economies.
And it is that the war, mainly, although not only, is generating restrictions in the trade of fuel, food and agricultural fertilizers, which are causing the cost of these goods to rise.
Before the Russian invasion in Ukraine blew up any projections, at the beginning of 2022 the World Bank was already talking about a “pronounced slowdown” in the world economy after the rebound effect that it suffered after the strict confinements that were experienced in 2020 during the first months of the pandemic.
“The global economy is simultaneously grappling with Covid-19, inflation and policy uncertainty, with government spending and monetary policies moving into uncharted territory. Rising inequality and security concerns are particularly damaging for developing countries,” World Bank Group President David Malpass said in early January.
Russia and Ukraine: two main resource exporters at war
Russia and Ukraine are two of the world’s leading exporters of energy resources and raw materials, respectively.
For its part, Russia is the main exporter of fertilizers and natural gas, and the second largest exporter of crude oil on a global scale. Meanwhile, in Ukraine, its wheat production accounts for a third of world exports of this cereal, as well as producing 80% of the world’s sunflower oil and 19% of corn.
The blockade of land and sea export routes in Ukraine due to attacks by Russian troops or the sanctions imposed by part of the international community on Vladimir Putin’s regime further complicate the delicate inflationary situation.
According to World Bank forecasts, the interruption of exports of these goods will mean that the price of energy will rise by more than 50% this year, although, in parallel, the agency expects prices to stabilize and begin to fall during 2023 and 2024.
Also, until 2024 the cost of agricultural and mineral products is expected to grow by 20%, although it depends on how long the armed conflict in Ukraine extends and how long the economic sanctions on Russia last.
At the moment, the central banks are looking for alternatives through proposals to reduce or freeze the prices of some goods with the aim of stimulating the markets and favoring direct investment.
Before the outbreak of the war, this mechanism was already promoted, for example, by the Argentine government of the progressive Alberto Fernández, who in October 2021 proposed freezing the prices of 1,247 products for 90 days to deal with skyrocketing inflation.
Argentina, the crisis of the crisis
In the Southern Cone country, the price of food has risen 20% in just three months. Despite the efforts to contain inflation, its interannual rate was 55.1%, 2.8 percentage points more than the variation for February.
Matías Kulfas, Argentine Minister of Productive Development, announced this Saturday that the forecasts for the inflation index for the month of April “do not come in handy.”
“There was a disproportionate rise in the price of wheat. There we understood that it was necessary to have a stronger and more forceful action because otherwise the price of bread was going to multiply in unusual terms,” said Kulfas.
In recent weeks, the Argentine Executive announced a “war against inflation” through the implementation of subsidies for the mills, responsible for processing the flour, in order to reduce the cost of bread and other products derived from flour. .
In Mexico, tortillas rose more than 17% compared to the previous year
In Mexico, year-on-year inflation stands at 7.72%, the highest in the last two decades.
This rise in the price of life has consequences for one of the most precious food goods in Mexican gastronomy, tortillas.
The price of these grew 17.42% annually in the first half of April, so that, for the same price, Mexicans can now buy fewer tortillas than a year ago.
The Government of Andrés Manuel López Obrador announced that it will promote an “anti-inflation plan” to contain the prices of more than twenty products of the basic family basket, among them, precisely, corn and tortillas.
The United States has the highest inflation in four decades
US year-on-year inflation was 8.5% in March 2022, more than 6% higher than the figure for the same period in 2021, which represents the highest price increase in 40 years.
Last Thursday, April 28, the Joe Biden government reported that the economy of the North American giant contracted by 0.4% during the first quarter of 2022. The US authorities blamed the economic contraction on the omicron variant and inflation.
However, the high cost of living would not have had, at least for now, an impact on the consumption rates of Americans, whose rate grew by 2.7% in the first quarter.
The European Central Bank admits that it was wrong in its forecasts
Also last Thursday, the European Central Bank (ECB) made a statement, publishing its economic bulletin in which it acknowledged having “substantially” underestimated the rise in inflation.
Already during the first quarter of 2021, underestimates were registered, which were accentuated in the third quarter of last year, according to ECB managers.
However, the underestimation of the first quarter of 2022 represented the largest one-quarter inflation error seen since the projections began in 1998. A difference of 2 percentage points between the actual data and the projection prepared in December 2021.
The month of March was the record with the highest rise since the measurements began and since the monetary unification in the territory of the Union. The increase in the cost of living reached 7.50%, above the estimates, which placed it at 6.60%.
Other consequences of inflation
The increase in the cost of living, exacerbated by the post-pandemic and the war in Ukraine, also poses a challenge for the pressing food security crisis suffered by the most unequal countries on the planet.
The World Bank stated that inflation is at its highest since 2011 in emerging economies and developing countries, where citizens spend 50% of their income on food.
With information from EFE, AP and local media
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