Inflation widening rich-poor gap
In recent months, inflation has taken the world by storm, impacting not only Bangladesh but also countries in the first world. I have learned a few things from my wife through it all.
She has a knack for finding the silver lining in challenging situations. When you see fuel price going up by 50 per cent, she looks at walking or cutting down on social activities reminding us of the health benefits; let's cut down on meat which is good for health; coffee price has gone up, so what, let's take tea instead; bread price has gone up by 40 per cent due to higher price of the imported wheat resulting from the Ukraine war, let's switch to locally grown rice.
It triggers a thought in my mind as to why world leaders are trying to suppress the inflation figure instead of educating their people on how to fight inflation.
You talk to a rickshaw-puller or day-labourer or for that matter any middle-class person about the price increase of essentials, they would tell you the numbers from the top of their heads with accuracy. They will also tell you how they are maneuvering their food habits to make ends meet within the limited budget and at what cost. Our government may learn from their insights and share the knowledge with the rest.
Let's look at the corporate scenario.
During my fast-moving consumer goods (FMCG) days in Unilever, the finance team would get happy when the commodity prices went up, as it is a blessing in terms of meeting the immediate profit target. Professional companies very smartly pass on the cost increase to the consumer when commodity prices in the international market go up.
But the actual impact on the cost structure is more likely to come after three to six months depending on multiple factors. This is one situation that marketing experts agree upon with their financial counterparts, albeit reluctantly.
Therefore, "smart" actions of the corporates may unnecessarily cause immediate hardship to the general public. Similarly, stockers make their fortune when such crises come at the cost of the poor. This fundamental process along with other economic factors, as a result, makes the rich richer and the poor poorer.
High inflation, in short, tends to worsen economic inequality or poverty because it hits harder the earnings and savings of lower or middle-income households than the well-off. Sadly, households that have recently escaped poverty may get pushed back into it by rising inflation.
While the current inflation in Bangladesh is primarily driven by global factors, namely the post-Covid surge in demand, the Ukraine war, shutdown in China etc. domestic policies can still play a pivotal role in driving or controlling its repercussions to minimise the adversities.
The same situation prevails in the corporate world to some extent too. We all know high inflation has a direct relationship with high-interest rates. Because of higher interest rates, many struggling companies that were just managing at a break-even level, in terms of cash or profitability, would no longer be able to service their debts.
The outcome may be much bleaker for some that might face bankruptcy or get acquired by shark companies like Berkshire Hathaway of Warren Buffet, Apple and Alphabet. The companies with large cash on their balance sheet will opt to buy the sick or struggling companies if it brings synergy for them. I have observed the same phenomenon for startup companies. If the current global crisis continues, many potential startups may plunge to early death due to a lack of funds.
In a briefing -- Inequality Kills -- published on January 17 2022 ahead of the World Economic Forum's Davos Agenda, Oxfam says inequality is contributing to the death of at least 21,000 people each day, or one person every four seconds. This is a consecutive finding based on deaths globally from a lack of access to healthcare, gender-based violence, hunger, and climate breakdown.
The report also highlights that the 10 richest in the world had their fortunes doubled during the pandemic while the incomes of the rest witnessed a fall.
It is always the poor who bear the brunt of high inflation because they are unlikely to afford products that are essential to their health or household needs. A big chunk of their earnings is essentially spent on basic needs like food and education. Hence any increase in the price of their basic needs would severely impact them.
Let's take an example of a family whose monthly income is Tk 20,000. Some 40 per cent goes for house rent, 40 per cent for food, 10 per cent for family transport and 10 per cent for education and miscellaneous expenses. If the inflation is 15 per cent, then the impact is Tk 6,000 on the household with no increase in salary or earnings.
The best way to deal with it is to further reduce the quality of food intake, ask children to study from home, and opt to walk or ride a bicycle instead of taking a mode of public transport. But if we look at the life of the upper-middle-class or the rich, inflation has little impact on their lifestyle.
Inflation-driven crises are as old as time and it has always hit the poor most while creating opportunities for certain segments of the rich, especially the cash-rich corporates. To handle the current challenges from inflation triggered by external factors that are not really in our control, our government may consider some unique approaches based on the insights shared above to mitigate the sufferings of the poor.
The author is a telecom and management expert.