As the cost of living increases around the world, governments are not leaving the task of controlling inflation to their central banks. They are responding in other ways as well.
There is a long list of other policies aimed at curbing prices. Many of these, along with new ones, are now being reapplied from the President’s Supply Chain Task Force. USA, Joe Biden, and energy subsidies from Europe, to general controls from Argentina.
Two fundamental rules of orthodox economics in recent decades have been that prices must be set in free markets and that inflation management is the task of monetary policy. But pandemic pressures on prices this year, following record stimulus from governments and central banks that have boosted demand around the world, are muddying the problem.
On the one hand, it is unclear how rising borrowing costs – as many countries are already doing – can address the causes of pandemic inflation on the supply side of economies, such as transportation delays or shortages. of materials and labor.
On the other hand, from the point of view of politicians, the moment is not right. Economists generally estimate that it takes at least six months for tighter monetary policy to take effect by curbing demand. So even if the Federal Reserve, for example, raises interest rates in late 2022 – with an impact that will be felt sometime in 2023 – that doesn’t ease the pressure on politicians like Biden to do something sooner.
Surveys, from the United States to United Kingdom, have shown that voters are concerned about price hikes.
More generally, the pandemic has reignited the debate about the role of governments in the economy, and inflation is part of that discussion. The prevailing view has been that leaving markets alone is the most efficient way to offer cheap products.
But this year’s supply chain crisis has raised questions about whether the pursuit of efficiency and low prices has been at the expense of stability, or even national security.
Energy subsidies
Rising energy prices are one of the main components of pandemic inflation, and governments are intervening to cushion the impact. This topic is likely to feature prominently at this weekend’s meeting of the leaders of the Group of 20.
France plans to implement a one-time 100 euro grant for low-income people. Spain it has promised measures to limit household bills and is imposing a one-time tax on some energy providers, although it refrained from imposing a broader charge. Kenya It is using a stabilization fund to lower pump prices, and it also lowered the gas tax that raises money for the fund.
Economists do not consider these subsidies to be anti-inflationary, since they do not reduce costs, but rather distribute them differently. But they do reduce the immediate increase in living expenses, which is what inflation means to most non-economists. In Latin America, a price that is especially sensitive for politicians is that of liquefied petroleum gas, because it is used for cooking, especially in the poorest households.
The Mexican president, Andrés Manuel López Obrador, is creating a state distribution company that will sell the fuel “at a fair price”, And his government imposed price caps in some regions. Brazil’s Senate approved a grant program to help some 11 million families buy gas for cooking, funded in part by dividends received from state oil giant Petrobras.
Food prices
Especially in low-income countries, rising food prices can trigger a social crisis, and this year has generated the fastest rise in a decade.
Some countries are trying to boost supply. The central bank of Nigeria it is supporting farmers with cheap loans, so they can increase production.
Russia, the world’s largest wheat exporter, is also trying to improve the productivity of its farms, but acknowledges that this will take time, and it is also holding back sales abroad to ensure that there is enough grain for the domestic market. The measures include an export duty that is adjusted each week.
This illustrates the element of futility that some cost of living policies can have. When countries that export food or energy take steps to make those products affordable at home, they can limit supplies – and raise prices – elsewhere. This year’s ban on beef exports from Argentina is another example.
Other governments have focused on how to sell food. Turkey is expanding a network of agricultural cooperative stores and has tasked its officials with investigating abusive prices in wholesale markets. It also removed import tariffs on cereals and lentils, and is working on an early weather warning system to detect potential supply crises.
Price controls
Argentina has a long history of unorthodox policies to control prices, and it has always had one of the highest inflation rates in the world, suggesting that they have not worked.
Still, President Alberto Fernández has implemented some of the most drastic measures to keep the cost of living low. This month it announced a price freeze for more than 1,400 household items until after Christmas, following a breakdown in talks with the industry about a price deal. He also ordered companies to produce at full capacity.
Supply chains
Biden has been fighting for months to smooth bottlenecks that drive up consumer prices and threaten shortages during the holiday season, even though his Administration has limited powers to address them.
The White House created a supply chain task force. He has tried to pressure congested ports to work longer hours, get more truck driver licenses issued to overcome labor shortages, and negotiate deals for companies like FedEx Corp. extend your delivery hours.
ChinaWhere central planning plays a larger role, it is not suffering from high consumer inflation at the moment, but is concerned about increases in some producer prices, especially coal, which threaten to exacerbate energy shortages. The highest planning agency says it is evaluating intervening in a market that “it has completely deviated from the fundamentals of supply and demand. ”
The authorities also released reserves of some metals to cushion costs. European rulers have a longer-term plan for another key driver of the pandemic inflation: semiconductors. They want to make more chips in the region.
“There are no alternatives to state intervention“If you want to achieve that goal, Italian Prime Minister Mario Draghi said last week.
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Ricardo is a renowned author and journalist, known for his exceptional writing on top-news stories. He currently works as a writer at the 247 News Agency, where he is known for his ability to deliver breaking news and insightful analysis on the most pressing issues of the day.
