The Price Increases that Matter for the Poor
Food-price inflation has more complex causes than other price increases, and addressing it effectively requires a different set of strategies. But rich-country governments are not sufficiently discussing them, and the world’s poor are continuing to suffer as a result.
NEW DELHI – The question of how best to control inflation is back on the economic policy agenda, and opinion is divided about how to address it. The mainstream view emphasizes the need for tighter monetary policies and regards higher interest rates and reduced liquidity provision as justified, even if they dampen the fragile economic recovery now underway in many countries. Others argue that today’s inflation is transitory, reflecting temporary supply bottlenecks and labor-market shifts, and will soon correct itself.
In rich countries, policymakers still rely mainly on macroeconomic tools to tackle inflation. But one set of price increases is different from the others: food-price inflation. Not only does this phenomenon have a much greater direct impact on people’s lives, especially in developing economies; it also reflects more complex causes, and addressing it effectively requires a completely different set of strategies. Unfortunately, governments are not discussing them sufficiently.
This neglect is deeply troubling. At the end of 2021, the United Nations Food and Agriculture Organization’s (FAO) food price index was at its highest level in a decade and close to its previous peak of June 2011, when many were warning of a global food crisis. Moreover, last year’s increase was sudden: from 2015 to 2020, food prices had been relatively low and stable, but soared by an average of 28% in 2021.