Page 77 - bne monthly magazine October 2022

bne October 2022 New Europe in Numbers I 77
IMF: How food and energy are driving the global inflation surge
Philip Barrett, economist for the IMF
Global inflation was generally moderating when the pandemic began, and the downward trend continued
into the early months of the crisis. But surging prices since late 2020 have pushed inflation steadily higher. The average global cost of living has risen more in the 18 months since the start of 2021 than it did during the preceding five years combined.
Food and energy are the main
drivers of this inflation, as our Chart
of the Week shows. Indeed, since
the start of last year, the average contributions just from food exceed
the overall average rate of inflation during 2016-2020. In other words,
food inflation alone has eroded global living standards at the same rate as inflation of all consumption did in
the five years immediately before the pandemic. A similar story holds for energy costs, which show up both directly and indirectly, through higher transportation costs. This is not to say that prices of other items are not rising too. For example, services inflation has increased in the United States and the euro area. And the relative impact of food, energy and other items in driving inflation varies considerably across countries.
Inflation continued to climb throughout July, albeit a little more slowly. Though circumstances vary by country, the latest observations show a slight change in the composition of inflation, with food’s share increasing further while energy-related categories eased slightly. This is consistent with the possibility that global energy prices have been passed on to consumers more quickly than higher wholesale food prices.
Our latest World Economic Outlook
in July projected inflation to reach 6.6% this year in advanced economies
and 9.5% in emerging market and developing economies – upward revisions of 0.9 and 0.8 percentage points respectively from three months earlier. Next year, interest-rate hikes are likely to bite, with the global economy expanding by just 2.9%
and in turn slowing price increases worldwide.
With rising prices continuing to squeeze living standards worldwide, taming inflation should be the priority for policymakers. Tighter monetary policy will inevitably have real economic costs, but these will only
Inflation drivers
be exacerbated by delaying corrective action. As a recent Chart of the Week shows, central banks have dramatically pivoted this year toward tighter policy globally.
Targeted fiscal support can help cushion the impact on the most vulnerable. Policies to address specific impacts on energy and food prices should focus on those most affected without distorting prices. And with government budgets stretched by the pandemic, such policies will need to be offset by increased taxes or lower government spending.
Food and energy prices continue to drive the global inflation surge. (percent, median inflaion rate)
Inflation already began to rise during the coronavirus pandemic, but the showdown between the West and Russia and the related energy crisis has pushed rates higher in 18 months than in the last five years combined.
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