A Global Storm Is Brewing: Leaders Must Immediately Tackle Inflation

A microbe, causing political instability, inflation, and even insurrections around the world seems somewhat of a stretch—more like a sci-fi thriller plot, than reality. If it only were the case!

For one, disease outbreaks may worsen pre-existing tensions within a society, as happened in the second cholera pandemic in France. The poor suspected the elite of poisoning them while the rich accused the poor neighborhoods of being the breeding grounds for the infection. The subsequent insurrection, known as the Paris Uprising of 1832, wounded or killed about 800 people.

Civil unrest spread to other countries, including England, Ireland, and Prussia, and in Russia, the disturbances came to be known as the Cholera Riots. Indeed, social scientists have noted that disease, unrest, and war, co-occur in a pattern.

Alarmingly, the makings of similar crises are all present now. Rising prices, food shortages, and famines, in the present day, do not just happen on far-off islands of poverty, leaving the powerful unscathed. They are already bringing down governments and becoming a political force to be reckoned with. Here’s how it all connects.

The war in Ukraine and the global food crisis

Food prices saw a rise due to the pandemic on account of logistical disruptions affecting supply and a sharp economic recovery that increased demand, themes I covered in an earlier article. But the lion’s share of the current food inflation is a direct consequence of the Russian invasion of Ukraine. War has meant more problems for farmers. Ukraine is unable to export grains on account of the blockade, and prices of some inputs like fertilizers, of which Ukraine and Russia are major exporters, are rising.

This is a war between the geographically largest country in Europe (Ukraine) and the geographically largest country in the world (Russia), and given the abundance of fertile land, especially the area’s amazingly productive “black earth,” these two giants are among the world’s top grain exporters.

As supply is disrupted, wheat, corn, and edible oil prices are rising. Already, global food prices are 57 percent higher now than a year earlier.

This is especially concerning for the extremely poor, i.e., those living on $1.90 a day or less. Food expenditure takes up approximately two-thirds of their income. This means, even in normal times, they’re able to spend only $1.25 on food a day. Soaring food prices pose a tough choice for the poor: eat food of less than $1.25 cost or reduce consumption of other necessities like medicine to below 63 cents.

Sensing trouble, India had banned wheat exports, while Indonesia had stopped all exports of palm oil. The policy attracted criticism abroad as international prices surged while causing uproar by farmers at home, as domestic prices plummeted. Faced with criticism, both countries have eased the restrictions, but the episode shows how panic about food security in a country can spontaneously trigger an international crisis, especially endangering the food-importing countries.

Riots, violent protests, and the rising challenge for governments

Already, people are getting increasingly frustrated and governments around the world are having to take the heat.

In Sri Lanka, Prime Minister Mahinda Rajapaksa had to resign, after violent protests against inflation. Unsustainable dollar-denominated debt, worsened by the free fall of the tourism-dependent Sri Lankan rupee, left the government, which has now defaulted, in a tight spot.

Food inflation in Sri Lanka reached 57.4 percent in May and may worsen with a further fall of the rupee, which has already depreciated by a staggering 80 percent since March. The spokesperson for the UN humanitarian agency Office for the Coordination of Humanitarian Affairs (OCHA) warned of Sri Lanka being on the verge of a “full-blown humanitarian emergency,” as it faces severe shortages of food, fuel, and medicine. The government is now trying a 4-day work week to help manage fuel and food shortages, by encouraging people to stay home and “engage in agricultural activities.”

Meanwhile, Pakistan has seen the fall of the popular government of Imran Khan, which despite handling the pandemic rather well, couldn’t really get a handle on inflation. Allies in Khan’s coalition government, sensing the pulse of the public—some say, of the powerful military—jumped ship.

Yet, the new Shahbaz Sharif-led coalition government, which led “End Inflation March” weeks before coming to power, is having a tough time finding its feet. The rupee depreciated by more than 13 percent in about two months and the inflation trajectory has considerably worsened since the new government took charge. In an effort to resume the stalled IMF program, the petrol price has risen by 56 percent and high speed diesel by a whopping 83 percent in just 20 days.

Peru, meanwhile, saw violent protests against inflation in which at least six people died demanding President Castillo’s resignation. Argentina, where inflation reached 58% in April 2022, is similarly seeing protests. The IMF has warned that Latin American countries could face social unrest if immediate measures to help the poor are not taken.

Even relatively stable, high-income countries, with many more resources to tackle inflation at their disposal, have seen growing dissent. The approval rating for Joe Biden in the U.S. has been continuously falling, as gasoline prices have crossed $5 per gallon in a historic first. In the UK, Boris Johnson survived the vote-of-no-confidence recently, but his popularity has seen a sharp decline. Meanwhile, in Australia, Scott Morrison lost elections to Anthony Albanese, in a contest where the economy and inflation featured prominently.

Leaders need to act now, any government could be next

The economic squeeze faced by people as a result of the pandemic is getting worse by the day due to the added effects of the Russian war. Some accuse Russia of using war-inflicted inflation and the threat of hunger as a bargaining chip. Russia, on the other hand, blames the Ukrainian mines in the defending country’s ports, and an array of sanctions on Russia that have increased the costs of trade and are responsible for inflation.

Whatever the actual share of responsibility for the crisis is between Ukraine and Russia, what’s clear is that soaring living costs are threatening livelihoods, as men of power struggle to sort their egos out.

This war needs to end. But until that happens, governments urgently need to introduce policies to protect the vulnerable. If the wounds of the hapless are allowed to simmer, the resulting chaos will bring more than just the poor down, if history is any guide. Time is running out.