How does inflation affect the cost of living?
High inflation has affected economies over the past two years, a situation that has resulted in higher costs and more difficult financial choices for consumers. Monthly inflation data in the US peaked at 9.1% annualized in June 2022 and has since retreated relatively well.
Inflation in the United States – the world's largest economy – accelerated again due to a 3.6% rise in gasoline prices, with the consumer price index rising 0.5% in January, following a 0.1% rise in December.
According to Reuters, the consumer price index rose 6.4% in the 12 months to January, according to the US Department of Labor. Inflation occurs when economic changes lead to large price increases, which reduces the purchasing power of consumers, and the report also notes that the main reason for price increases is the imbalance between supply and demand. There are 3 main reasons why demand exceeds supply: supply disruptions, as happened during the pandemic; increasing the money supply; Consumer expectations. Inflation describes the gradual rise in prices, while the cost of living represents the amount of money a person needs to spend over a given period.
When inflation rises, so does the cost of goods and services, which leads to a decrease in purchasing power, which is a concern, especially for those with low fixed incomes. Inflation affects the price of everything you need for your daily life, from food to housing to the cost of filling up your tank so you can get to work or buy clothes.
According to author Corian Hicks, inflation has as much impact on the housing market as it does on the cost of living, including rising material and labor costs and rising interest rates.
High inflation poses a major challenge to many households around the world, with higher prices eroding the value of wages and real savings, making households poorer, according to a World Bank report.
The report also notes that these effects are felt differently by different groups, with low- and middle-income households being more vulnerable to the risk of high inflation than wealthier households, reflecting the composition of their incomes, the wealth they own, and the type of consumer goods they have.
The report confirms that high inflation exacerbates inequality or poverty, noting that even households that have recently been lifted out of poverty may fall back into poverty as a result of these rate hikes.
The World Bank reports that the calculation of consumer price inflation measures is done by using a basket of goods that represent the consumption of ordinary people, however, the actual composition of spending varies by income group.
The report adds that the lowest-income households in emerging market countries and developing economies – for example – spend about 50% of their income on food, while the highest-income households spend no more than 20% of their income on food.
The report highlights that in times of economic crisis, high-income households can easily switch from high-quality to low-quality goods and can benefit more from discounts on purchases and wholesale sales, which poor households do not have.
Forbes reports that no one can accurately predict how high inflation will reach or when it will end, citing experts as saying that inflation has peaked in most markets and should continue its downward trend, but he believes that it will take longer to remove the pressures that cause prices to rise first — such as historically low unemployment and higher wage growth.
But the report argues that most experts agree that planning ahead is essential to dealing with inflationary pressures, adding that having an emergency fund protects you from those pressures so that your long-term savings are fully invested.
As for national policymakers, the World Bank report says they must:
Use social welfare policies to protect the poorest from rising prices.
Avoid resorting to trade restrictions and export bans to protect local food supply operations.
Central banks should consider the potential impact of their actions to combat inflation on poverty and inequality.
Stimulate more competition in the financial sector as one of the measures to protect the real value of poor households' property from inflation.
According to the latest data published on the World Bank's website, the 10 countries with the highest food price inflation are ranked as follows:
Zimbabwe: 285%
Venezuela: 158%
Lebanon: 143%
Argentina: 95%
Turkey: 77%
Ghana: 60
Sri Lanka: 59%
Rwanda 59%
Suriname: 55%
Haiti: 53%
Food prices are rising
Which Arab countries have the highest food price inflation?
According to the World Bank and other official data, the five countries in the Arab region with the highest increases in food prices – with the exception of Sudan, Yemen, Syria and Comoros, for which no data are available – are as follows:
Lebanon: 143%
Egypt: 48.1% according to the latest government data,
Morocco: 16.8% according to the latest government data,
Mauritania: 15.4%
Tunisia: 14.1% according to the latest government data.
What is the rate of food price inflation by economy?
World Bank data shows that domestic food price inflation remains high worldwide. The most affected countries are located in: Africa, North America, Latin America, South Asia, Europe and Central Asia. The IMF forecasts that global inflation will fall from 8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024, however, these two percentages are still about 3.5% higher than pre-pandemic levels (2017-2019).
In the cost-of-living crisis, the priority of most economies is to achieve a sustainable decline in inflation, the report said, noting that global headline inflation may have peaked in the third quarter of last year, unlike core inflation, which most economies have not yet peaked.
At a time when the IMF is not ruling out the possibility that inflation will fall faster than policymakers think, the IMF warned that premature "monetary easing" (rate cuts) could lead to a return to sharp inflation once economic activity resumes, leaving countries vulnerable to further shocks, stressing that policymakers need to focus on returning inflation immediately above target.
