Tackling inflation from a pro-poor standpoint

[Celerity]

Easements of the impact of inflation will still leave the poorest losing ground. Positive pro-poor policies are needed.

https://socialeurope.eu/tackling-inflation-from-a-pro-poor-standpoint


Still scarred—flashback to a May Day demonstration in Athens in 2010 against the impact of austerity on the poor (Joanna, CC BY 2.0)

Inflation, driven primarily by large and persistent increases in energy and food prices, is a great concern around the world. Policy-makers remain divided on how best to control it—though tight monetary policy seems to be gaining ground, despite its potentially harmful impact on fragile economic recovery.

Perhaps the most pressing challenge in the short term is to tackle the impact of the rising cost of living on households, which is seriously affecting increasing numbers and sparking street protests. At the European Union level, agreement within the European Council meeting in late June to go on to the front foot to curb rising energy prices—and hence their social impact—seems however to have proved hard to reach, leaving initiatives in the hands of individual member states.

Member states have resorted to several measures, including lowering taxes, regulating prices and giving vouchers to vulnerable households, while international organisations, such as the International Monetary Fund, the Organisation for Economic Co-operation and Development and the European Fiscal Board, clearly advise governments to target temporary support at the most vulnerable. In designing pro-poor policies to attenuate the distributional impact of inflation, insights may be gained from Greece—a member state facing one of the highest inflation rates in the euro area and just recovering from a decade-long economic crisis which has left big scars in terms of lost output, high unemployment and large-scale impoverishment.

Utmost importance

One insight from such a worst-case scenario is that empirical evidence is of utmost importance in designing policies. Policy-makers are readily aware that lower-income households face a heavier burden from inflation, as they already spend a greater share of their resources on necessities such as food and energy. But how much heavier? The OECD reports that the increase in expenditure in eight member countries resulting from the surge in food and energy prices represents a larger proportion of total spending for low-income households. Compared with the highest income quintile, for the lowest the increment is between one and three percentage points greater, the Netherlands and the United Kingdom being the starkest instances.

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[Pobeka]

1. Wow, look at the drop of impact from Decile 9 to Wealthiest 10%

I would assume the drop of impact would be even larger for the Wealthiest 1%.

[Celerity]

2. +1