There Will Be High Inflation Inequality In 2022, Warn Economists

Economists fear that the coronavirus pandemic has ushered in a new era of inflation disparity, with poor people bearing the brunt of growing prices.

This is because a larger amount of their budget is allocated to cost-increasing areas. Food, for example, has increased by 6.4 per cent in the last year, but gasoline has increased by 58 per cent. As federal stimulus programmes wane away, many people are suddenly facing rising prices.

“They’re essentially looking to stretch a dollar most days,” said Chris Wimer, co-director of the Center on Poverty & Social Policy at Columbia University. “It’s going to lead to difficult choices between putting gas in the car or paying for your kids’ child care or putting food on the table.”

According to a recent study by the Penn Wharton Budget Model, low- and middle-income families will spend around 7 per cent more in 2021 for the same things they purchased in 2020 or 2019. For the average family, this equates to around $3,500.

Wealthy households, on the other hand, increased their spending by only 6%.

According to Kent Smetters, the Penn Wharton model’s director, this gap is typical during inflationary periods. Higher-income families, on the other hand, have transferred more of their expenditure away from commodities and more towards services since the 1980s, when prices rose this dramatically. Food, for example, accounted for 12.7 per cent of the budget for the richest 5 per cent of households in 2020, compared to 16 per cent for the bottom 20 per cent.

On the other hand, pandemic-caused disruptions in manufacturing have pushed up the prices of staples that poor families rely on.

“What they happen to be buying has been hit harder by the supply crunch,” Smetters said. “It’s broader-based than in the past.”

The findings are consistent with Harvard Business School economist Alberto Cavallo’s examination of credit and debit card information at the onset of the pandemic. He demonstrated that low-income customers saw rising prices about double those of higher-income consumers.

According to a joint analysis from Columbia University and the London School of Economics published in 2019, around 3 million more individuals would be considered poor if their wages were adjusted for inflation rates.

As there was a phasing out of pandemic induced federal benefits and President Joe Biden’s big social investment package remains stuck in Congress, experts predict that poverty could soar in early 2022. The cessation of monthly payments of the child tax credit, which provided families with $300 per month for each child under the age of six and $250 for older children, is of special concern.

The benefit, according to Columbia, lifted nearly 4 million children out of poverty. The most recent monthly cheque was mailed on December 15th.

“You see a pretty clear impact of those payments,” Wimer said. “We’re obviously all worried about January.”

Republicans, on the other hand, fear that more cash from Washington will result in even higher inflation, which will burden the poor even more.

“There are some provisions in this bill that maybe we could have a bipartisan agreement on once inflation calms down,” Sen. Lindsey Graham, R-S.C., told reporters earlier this month. “But right now is not the time to add any more federal spending, growing the government, creating a problem for inflation.”

(Adapted from BBC.com)



Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability, Uncategorized

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