View previous stories
	Household budgets everywhere are impacted by high food, transport and energy prices by UN News, Global Crisis Response Group, agencies   June 2022 (Extract)   More than three months since the start of the war in Ukraine, people globally are facing a cost-of-living crisis not seen in more than a generation, with escalating price shocks in the global food, energy and fertilizer markets - in a world already grappling with the COVID-19 pandemic and climate change.   An estimated 1.6 billion people in 94 countries are exposed to at least one dimension of the crisis, and about 1.2 billion of them live in ‘perfect-storm’ countries which are severely vulnerable to all three dimensions – food, energy and finance - of the cost-of-living crisis, according to the latest findings of the United Nations Secretary-General’s Global Crisis Response Group (GCRG) on food, energy and finance systems.   “For those on the ground in Ukraine, every day brings new bloodshed and suffering. And for people around the world, the war, together with the other crises, is threatening to unleash an unprecedented wave of hunger and destitution, leaving social and economic chaos in its wake,” warned Secretary-General Antonio Guterres at the launch of the GCRG’s latest brief.   “Vulnerable people and vulnerable countries are already being hit hard, but make no mistake: no country or community will be left untouched by this cost-of-living crisis.”   After two years of fighting COVID-19, the world economy has been left in a fragile state. Today, 60 per cent of workers have lower real incomes than before the pandemic; 60 per cent of the poorest countries are in debt distress or at high risk of it; developing countries miss $1.2 trillion per year to fill the social protection gap.   The ability of countries and people to deal with adversity has therefore also been eroding. As the war erupted, global average growth prospects have been revised downward; many countries’ fiscal balances have deteriorated, and the average household has lost 1.5 per cent in real income due to price increases in corn and wheat alone.   Worldwide, more people have been facing famine-like conditions, and more people have faced severe hunger emergencies. The lingering effects of the pandemic, coupled with the war in Ukraine and the impacts of climate change, are likely to further increase the numbers of people experiencing poverty. And as poverty increases so does vulnerability, particularly for women and girls. Countries and people with limited capacity to cope are the most affected by the ongoing cost-of-living crisis.   Three main transmission channels generate these effects: rising food prices, rising energy prices, and tightening financial conditions. Each of these elements can have important effects on its own, but they can also feed into each other creating vicious cycles - something that unfortunately is already happening.   For instance, high fuel and fertilizer prices increase farmers’ production costs, which may result in higher food prices and lower farm yields. This can squeeze household finances, raise poverty, erode living standards, and fuel social instability. Higher prices then increase pressure to raise interest rates, which increase the cost of borrowing of developing countries while devaluing their currencies, thus making food and energy imports even more expensive, restarting the cycle.   These dynamics have dramatic implications for social cohesion, financial systems and global peace and security. Food should never be a luxury; it is a fundamental human right. And yet, this crisis may rapidly turn into a food catastrophe of global proportions.   Higher energy costs, trade restrictions and a loss of fertilizer supply from the Russian Federation and Belarus have led to fertilizer prices rising even faster than food prices. Many farmers, and especially smallholders, are thus squeezed to reduce production, as the fertilizers they need become more expensive than the grains they sell. Critically, new fertilizer plants take at least two years to become operational, meaning that most of the current supply of fertilizers is limited. Because of this key fertilizer issue, global food production in 2023 may not be able to meet rising demand.   Rice, a major staple which up to now has low prices because of good supplies, and is the most consumed staple in the world, could be significantly affected by this phenomenon of declining fertilizer affordability for the next season.   Time is short to prevent a food crisis in 2023 in which we will have both a problem of food access and food availability. If the war continues and high prices of grain and fertilizers persist into the next planting season, food availability will be reduced at the worst possible time, and the present crisis in corn, wheat and vegetable oil could extend to other staples, affecting billions more people.   In one way or another, everyone is exposed to the shock waves of the war. The level of exposure of a country and its ability to deal with the shock determine a country’s vulnerability. And this is a challenge in the developing world.   The UN Global Crisis Response Group, together with the United Nations Regional Economic Commissions, undertook a global vulnerability assessment on the capacity of countries to cope with each of the channels of transmission and the vicious cycles they can create.   The results confirm a widespread picture of vulnerability: 94 countries, home to around 1.6 billion people, are severely exposed to at least one dimension of the crisis and unable to cope with it. Out of the 1.6 billion, 1.2 billion or three quarters live in ‘perfect-storm’ countries, meaning countries that are severely exposed and vulnerable to all three dimensions of finance, food, and energy, simultaneously.   This vulnerability of Governments and people can take the form of squeezed national and household budgets which force them into difficult and painful trade-offs. If social protection systems and safety nets are not adequately extended, poor families in developing countries facing hunger may reduce health-related spending; children who temporarily left school due to COVID-19 may now be permanently out of the education system; or smallholder or micro-entrepreneurs may close shop due to higher energy bills.   Meanwhile countries, unless a multilateral effort is undertaken to address potential liquidity pressures and increase fiscal space, will struggle to pay their food and energy bills while servicing their debt, and increase spending in social protection as needed.   The clock is ticking, but there is still time to act to contain the cost-of-living crisis and the human suffering it entails. Two broad and simultaneous approaches are needed:   1. Bring stability to global markets, reduce volatility and tackle the uncertainty of commodity prices and the rising cost of debt. There will be no effective solution to the food crisis without reintegrating Ukraine’s food production, as well as the food and fertilizer produced by the Russian Federation into world markets – despite the war.   2. Increase people and countries’ capacity to cope. This means helping the most severely exposed countries help their poor and vulnerable populations, by increasing countries’ fiscal space and liquidity access so that they can strengthen social protection systems and safety nets and hence enhance the ability of people to deal with adversity.   Taken together, this suggests – as the United Nations Secretary-General said recently – that “there is no answer to the cost-of-living crisis without an answer to the finance crisis”.   All available rapid disbursement mechanisms at international finance institutions must be reactivated, and a new emission of Special Drawing Rights must be pursued. To succeed, strong political will across the multilateral community is needed. Piece-meal approaches will not work. What will, is a comprehensive approach that looks at the emergency today without forgetting about the future.   The vicious cycles this crisis creates shows that no one dimension of the crisis can be fixed in isolation. This crisis touches all of us. It is everyone’s problem and a common responsibility. Yet, we must accept that not everyone is affected equally. Some countries, communities and people are more vulnerable than others, and those need to be assisted first. It takes a world to fix a world, what is needed now is to start.   According to the brief, the increase in hunger since the start of the war could be higher and more widespread. World Food Programme estimates show that the number of severely food insecure people doubled from 135 million pre-pandemic to 276 million over just two years. The ripple effects of the war in Ukraine, however, are expected to drive this number up to 323 million in 2022.   The Food and Agriculture Organization’s latest food price index had already reached a record high in February 2022 before the war started, since then it has had some of the largest one-month increases in its history.   Despite the widespread impact of the crisis, not all regions and subregions are exposed in the same way, says the report, stressing the fact that some countries and communities are more vulnerable than others and need assistance urgently.   Countries in Sub-Saharan Africa, for example, remain significantly vulnerable with one out of every two Africans in the region exposed to all three dimensions of the crisis. The Latin America and the Caribbean region is the second largest group facing the cost-of-living crisis with nearly 20 countries deeply affected.   In South Asia, which is currently experiencing crippling levels of heatwaves, 500 million people are severely exposed to the food and finance crisis. Countries in Eastern Europe and Central Asia are severely exposed to the energy and finance dimensions, given the importance of remittances and energy exports from Russia.   The brief makes policy recommendations to address the cost-of-living crisis, highlighting immediate action on two critical fronts - the urgent need for stability in the global food and energy markets to break the vicious cycle of rising prices and the imperative to bring relief to developing countries, calling on resources to be made available immediately to help the poorest countries and communities.   “There is no solution to this global crisis without a solution to the economic crisis in the developing world. The global financial system must rise above its shortcomings and use all the instruments at its disposal, with flexibility and understanding, to provide support to vulnerable countries and vulnerable people,” stressed Guterres.   “The message of today’s report is clear and insistent: we must act now to save lives and livelihoods over the next months and years. It will take global action to fix this global crisis.”   * In a number of African countries basic food costs have risen by up to 30%. Globally, rising inflation driven by increasing fuel and food costs and supply chain disruptions are undermining household budgets, impacting low income and working people significantly.   * Access the report: http://bit.ly/GCRG-Brief-02 http://bit.ly/GCRG-BRIEF-03 http://bit.ly/GCRG-Brief-02 http://bit.ly/GCRG-Brief-01 http://news.un.org/pages/global-crisis-response-group/ Visit the related web page
	Corporate profiteering, financial speculation in commodities markets is adding to inflation by Jayati Ghosh Social Europe, IPS-Journal, agencies   The inflationary wave has revealed all sorts of things about governments but also, more tellingly, about economists. The number of economists, and consequently policy-makers, who remain wedded to the unyielding idea that inflation results from too-loose monetary policy — hence central banks should restrict the money supply and raise interest rates — is legion. It has become what JK Galbraith would have called the ‘conventional wisdom’.   It is still wrong. The causes of inflation vary by context and period. Tighter monetary policy is a blunt tool which risks generating recession and unemployment — harming workers even more than price increases. And besides this human suffering, if the drivers of inflation lie elsewhere, reducing the excess demand purportedly at fault will not even resolve the problem.   These obvious facts seem almost forgotten in mainstream discussion. Even the respected economist Olivier Blanchard, in a series of tweets, suggested that increasing unemployment was the only way to control inflation. The problem, apparently, was how to get workers to understand and accept this:   ‘One thought about inflation fighting. 1. When inflation comes from overheating, convincing workers that the economy needs to slow down, and that unemployment has to increase to control inflation, is hard but at least the logic can be explained. 2. When inflation comes from an increase in commodity and energy prices, convincing workers that unemployment has to increase to control inflation, is even harder. ‘‘Why should I lose my job because Putin invaded Ukraine?’’ 3. This makes the job and the communication strategy of central banks very hard indeed.’   Leave aside the highly problematic assertion that ‘unemployment has to increase to control inflation’, which has been effectively refuted, conceptually and empirically, over the past two decades.   Consider only the possibility that the driver of price rises is not ‘excess demand’ or workers demanding higher wages because they are not being adequately ‘disciplined’ by unemployment, but corporate profiteering, along with financial speculation in commodities markets.   There are good reasons to believe this is the case, especially in global markets and in the advanced economies. (In many low- and middle-income countries, the causes of inflation are more complex and mostly come from cost-push factors, including imported inflation from global prices and currency depreciations.)   Corporate profits   In the United States, for example, the Economic Policy Institute has shown that increasing corporate profits have contributed disproportionately to inflation. From the second quarter of 2020 to the last quarter of 2021, corporate profits were responsible for 54 per cent of overall inflation — a dramatic increase from the 11 per cent they accounted for in the previous four decades (1979-2019).   By contrast, unit labour costs were responsible for less than 8 per cent of the inflation, compared with 62 per cent in the previous four decades. Indeed, because of the recent price rises, the real value of the federal minimum wage is now at its lowest point in 66 years! The contribution of non-labour input costs — the famous ‘supply-chain issues’ so widely advertised — was 38 per cent, compared with 27 per cent in the earlier period.   Companies’ ability to raise profit margins could itself be due to increased demand. Pent-up demand from households unable to spend much during the pandemic could have had an effect, especially given the large fiscal stimuli of successive US administrations.   But a much bigger role was played by growing concentration and monopoly power in industry. Massively increased corporate profits were most evident in energy, food, and pharmaceuticals, as the supply shortages resulting from the war in Ukraine became convenient excuses for disproportionate price increases.   Research by the Roosevelt Institute shows that in 2021 firms in the US increased their mark-ups and profits at the fastest annual pace since 1955, taking both to their highest absolute levels since that booming postwar decade. The researchers note that pre-pandemic markups were a strong predictor of mark-up increases in 2021, making market power a significant driver of inflation.   While the public perception of the current food crisis is all about war-related supply shocks, again company behaviour has proved more significant. The major grain-trading agribusinesses experienced dramatic increases in profitability in January-March 2022. They raised their prices without being questioned — everyone assuming this to be the result of war-driven shortages.   Financial speculation, such as in wheat futures, drove up prices even in spot markets and the recent decline in wheat prices similarly reflects changes in futures contracts. (This is typical of speculative bubbles, which while often driven by news also tend to be affected by herd behaviour rather than real-world events.)   Such increased speculative activity is confirmed by important work by Agarwal, Lei Win, and Gibbs, who have tracked the activities of financial investors (investment funds in particular) in commodity markets. They find that, for example, ‘in the Paris milling wheat market, the benchmark for Europe, speculators’ share of buy-side wheat futures contracts has increased from 23 per cent of open interest in May 2018 to 72 per cent in April 2022’.   Similarly in May 2022, speculators’ long positions (buying positions) constituted over 50 per cent of open interest in Hard Red Winter and Soft Red Winter wheat varieties.   Regulatory action   If recent global price increases — which then translate into inflation of varying extent in different countries — are driven by such factors, then the policy response should be very different from the blunt instrument of aggregate monetary policy. It should instead focus on regulatory action to curb monopoly power and financial speculation.   Taxation of excess profits could be a deterrent to such behaviour in future, but specific actions to control prices of strategic commodities also have a role, as Isabella Weber noted. Those who have pilloried such policies appear to be unaware of both history and wider experience.   The paucity of creative thinking about the causes of, and responses to, inflation reflects the sorry state of the economics discipline. It is likely to have severe consequences, economically and politically.   * Jayati Ghosh is Professor of Economics at Professor of Economics at the University of Massachusetts at Amherst in the United States and Member of the Independent Commission for the Reform of International Corporate Taxation.   http://www.ips-journal.eu/topics/economy-and-ecology/dealing-with-inflation-really-6087/ http://www.epi.org/blog/corporate-profits-have-contributed-disproportionately-to-inflation-how-should-policymakers-respond/ http://rooseveltinstitute.org/publications/prices-profits-and-power http://australiainstitute.org.au/report/are-wages-or-profits-driving-australias-inflation/ http://www.theguardian.com/business/commentisfree/2021/dec/29/inflation-price-controls-time-we-use-it http://thewire.in/economy/speculation-is-contributing-to-global-food-insecurity-significantly http://www.lighthousereports.nl/investigation/the-hunger-profiteers/ http://ipes-food.org/pages/foodpricecrisis http://www.ipsnews.net/2022/07/cusp-catastrophic-food-crisis-50-years-global-response/ http://www.oxfam.org/en/press-releases/pandemic-creates-new-billionaire-every-30-hours-now-million-people-could-fall Visit the related web page
	View more stories