'Poorflation'

A high-school economist's take on how pandemic-related inflation has led to a higher burden on poorer households.

 

Covid-19 has resulted in some of the highest inflation rates seen in the US in over 40 years. An increase in demand for household goods, paired with a reduction in firm’s ability to supply, has increased prices to an unseen level. Inflation has been looming over us like a dark cloud for more than 2 years now, and has left a plethora of pressing issues behind.

 

Through the stock market’s record-breaking heights, increasing consumer confidence, profitable decisions on businesses, and an assortment of other trends, the number of millionaires and billionaires alike have bloomed. While Jeff Bezos and Elon Musk become the two wealth-giants who continue to grow wealthier, the laborers working under them face an equal and opposite downfall in their subsequent wealth and standard of living. 

 

Whilst many other such giants have gotten richer during the pandemic period, the decline in the purchasing power, as prices continue to rise, has led to a rapid increase in wealth inequality. World Bank reports, since 2019 there is an additional 97 million people added to the existing statistics of the population living under the extreme poverty line on less than $1.90 a day. While the rich have dodged the blow, the low income families have had to face the brunt of the problem.

 

‘Poorflation’, thus, is the process through which the number of people living in extreme poverty increases majorly due to the high levels of inflation.

 

Not only has the value of money decreased as government’s went on a ‘printing spree’ to avoid a financial meltdown, but prices have increased due to demand-pull and cost-push inflation. As poorer households are largely hand-to-mouth consumers, even a slight increase in price can be a huge proportion of their income, decreasing their willingness and ability to buy and consume daily necessities such as food, water, and shelter.

 

Since the value of money has deflated, the poverty line should be re-evaluated through inflation. Though the official definition of the poverty line has not changed, the 1.90 that already was not enough to consume daily necessities, now has an even lower purchasing power. If we were to imagine the number of people who are living under this ‘re-evaluated extreme poverty line’ it would be inconceivably greater than 97 million. 

 

The early impacts of the pandemic left a large dent in the US, and subsequently the global economy, initiating a record-setting wave of layoffs. Though the economy and job market have severely improved since, the impacted population are finding it harder to recover. African countries including Nigeria, Ethiopia and Kenya have been actively affected by ‘poorflation’. These are some of the top 10 countries whose global extreme poverty has increased the most due to inflation caused by the pandemic, and may face the most impact.

 

Many families have been thrown into poverty as they have had to experience the prompt increase in prices of their daily needs, reducing their disposable income. However, in many countries this has been seen as a temporary shock once viewing the recovery for China. Whereas, countries in South Asia and Africa may be facing more long term consequences, as the pre-pandemic poverty levels were already quite high, and with this new addition they don’t have many assets they can sell, and other quick ways to recuperate back to their original lifestyle.

 

Before the pandemic, the world’s population living in poverty was consistently decreasing, however due to the unexpected hit of this virus that still plagues the world today, the threats to poorer households and their incomes have been compounded. As companies start finding newer ways to cut costs to counter the effects of this inflation; they may end up engaging in two broad practices - cut out resources invested in training, blame the unskilled workers and eventually cut off the workers for their lack of skill.. Thus, although the market is recovering, the pandemic has left its permanent mark on the lower-income communities living in labor economies and the world at large, making us all active participants of ‘poorflation’.