Escalating Inflation Choking America

Economists like to say that inflation is the most unfair tax: it needs no approval from any Congress and it disproportionately affects the most vulnerable.

But in geographical terms, the increase in the cost of living is a phenomenon as global as covid, because it is largely a consequence of it.

It began more than a year ago, with two triggers: the subsidies and cash transfers made by many countries to workers and more fragile sectors to prevent a further decline in their economies (which triggered demand);

and the breakdown of supply chains (that limited supply).

It is not that the experts did not expect inflation, but they believed that it was going to happen.

Until the end of last year, authorities in charge of central banks in advanced economies,

as Jerome Powell (United States) and Christine Lagarde (Europe) assured that it was “transitory”.

They did not count on Putin: on February 24, Russia invaded Ukraine.

The war deepened this phenomenon.

If before it was thought that by recovering the pace of production prices would stabilize, the start of a war injected more uncertainty into the formula.

In essence, inflation is nothing more than the expectations about prices at a certain moment.

If a producer or trader believes that their inputs will be more expensive tomorrow, they raise prices today.

And there is nothing that worries more than a war that no one knows how long it will last, and that directly affects the prices of oil and some raw materials.

Each society experiences this global phenomenon as a particular tragedy.

If, in the United States, the cost of gasoline has sunk the popularity of Joe Biden and makes the Democrats impatient with the midterm elections in November,

Passers-by in the Plaza de la Constitución in Mexico City. Nayeli Cruz

Not all economies are as suffocated as Ecuador's, which has especially suffered the effects of the war (a quarter of the bananas it exports went to Russia and Ukraine, for example), but on both sides of the ocean bonfires of impatience have been lit .

In April, the Sri Lankan government was forced to declare a state of emergency due to citizen protests over fuel and food prices.

In May, bus drivers blocked the streets in Mexico City to allow them to increase the price of the ticket to pay for gasoline.

In the UK, railway workers brought trains to a near standstill - the biggest strike in 30 years - to demand higher wages.

The protests promoted by the Confederation of Indigenous Nationalities of Ecuador (CONAIE) paralyzed the country for 18 days;

It was the longest strike in recent years.

And these are just a few.

According to the International Monetary Fund, average inflation in this part of the world will be 11.2% this year and 7.1% next, well above the more common target of 2-4%.

Even so, the average number can be a bit misleading, because it does not portray the most dramatic increases or the decisions that each family has to make (giving up vacations is not the same as choosing between meat and medicine).

While governments lower tariffs and eliminate taxes to ease the consumer, central banks have been raising interest rates until they are close to historical highs.

But, in economies with little bank penetration and a lot of informality like those that populate the continent, monetary policy takes time to take effect.

For now, the blows are revealing the level of precariousness and the dependencies of each economy.

United States: the gasoline dilemma

Inflation was an almost forgotten problem for Americans.

In the last 30 years, average inflation had been above 2%.

Until the current crisis.

To overcome the pandemic, the Federal Reserve and the Biden administration flooded the economy with liquidity and demand soared while supply continued to be mired by supply chain problems and the coronavirus hangover.

These problems were accentuated by the war in Ukraine due to its impact on oil, food and other raw materials, and prices are already up 8.6%, the highest inflation in four decades.

A partially empty shelf of flu products at a CVS store in Miami.

In recent months, there has been a general shortage in pharmacies and convenience stores.

Eva Marie Uzcategui

A “$1.25” sign at a Dollar Store in Miami, Florida.

Visits to these stores by consumers are more frequent.

Eva Marie Uzcategui

Americans feel the bite out of their purchasing power when they go for gas.

The gallon (3.85 liters) has gone from three to five dollars in a year and a half.

In the last 12 months, the increase in gasoline is 48.7%, according to the Bureau of Labor Statistics.

The rest of energy leads the increases, with increases in the last year of 106.7% in fuel oil, 30.2% in natural gas and 12% in electricity.

In addition, the price of new cars has risen by 12.6% and that of used cars, by 16.1%.

Those who prefer to travel by plane do not have it better: tickets have risen 37.8% in one year.

Eating is much more expensive.

Making it at home costs 11.9% more, mainly because of meat, chicken, fish and eggs, which go up 14.2%.

Bread, cereals, beverages and dairy products rose by more than 10% and somewhat less (8.2%) by fruit and vegetables.

It is also more expensive to eat out: 7.4%.

Medical services, medicines, clothing and rentals have not yet been fully infected and are experiencing somewhat lower price increases, around 5%.

Inflation has sunk the popularity of the president, Joe Biden, and threatens to make the Democrats lose control of Congress in the legislative elections on November 8.

Biden has proposed to Congress to suspend the federal tax on gasoline for three months, but without success so far.

Responsibility for price stability rests with the Federal Reserve, which has promised to do whatever it takes to bring down inflation as soon as possible and has started raising interest rates at the fastest rate since 1994. The risk is to provoke a recession.

Ecuador: not a penny more

Making purchases in the Ecuadorian markets allows us to take an X-ray of the difficulties that, transformed into social unrest, support the mobilizations of indigenous organizations that lasted 18 days.

A dozen eggs have cost as much as $8, and a bunch of green plantains — a staple in every kitchen for every meal of the day — rose from $3.50 to $5 from one week to the next.

Half a kilo of chicken, the most common protein consumed in the country, was at a dollar and reached a dollar and a half within the escalation of prices that was exacerbated by the national strike, but that had been suffocating households for months.

Representatives of indigenous movements symbolically took over the House of Ecuadorian Culture, which has been an emblem of the social struggle during the 11th day of the national strike.

Ana Maria Buitron

Geovanni Carrasco and Anita Díaz share dinner with their children Abigail and Joaquín Carrasco while they watch the news with the latest information on the National Strike.

They live in the El Inca neighborhood, located north of Quito.Ana Maria Buitron

A man rests with his food ready to be prepared and cooked in one of the shelters that welcomes indigenous protesters who have mobilized to Quito to join the National Strike. Ana Maria Buitron

Plastic, cardboard, paper or fertilizers, basic in the export of shrimp or bananas that sustain the national economy, skyrocketed, making purchases more expensive also within the country.

As a result, food and basic products became more unaffordable than before for the pockets of Ecuadorians.

Transport and food are at the forefront of rising prices, but so are household items, education and health.

While the basic salary is 425 dollars per month and the average income of families of four members is 793.33 dollars per month, the official basic basket —calculated with 75 products and services of common use— has risen in one year from 710 $.35 per month to $735.15.

In official figures, inflation reached 3.38% in the May CPI, compared to the previous year, due to the rise in nine of the 12 items that make up the indicator.

If the figure is not as spectacular as in other countries, it is because Ecuador came from years of deflation.

Prices fell consistently from July 2020 to April 2021. The rise from -1.5% to 3.38% implies a substantial increase in the cost of living, especially in a country where only 32.2% of the economically active population last April had what is considered "adequate employment" (earning at least the minimum wage).

Chile: holidays and winter

Chileans were not used to inflation and suffer from it.

In the last three decades, the country enjoyed stability, but in the past 12 months inflation has already reached 11.5%, something that has not happened in 28 years.

Despite the measures of the Central Bank, which has again increased the interest rate to 9% - the highest in two decades - it is forecast that high prices will remain and that inflation will reach 13% in the third quarter of 2022, while the specter of economic recession hovers over Chile with a view to next year.

The increase in the cost of living "and its negative effects on families are reflected in the public concern about this phenomenon," assured the Central Bank's Monetary Policy Report published at the beginning of the month.

View of the prices of the basic basket that reflects the high values ​​of basic products in the Vega Central, the most popular market in Santiago.Sofía Yanjarí

A fruit and vegetable seller offers the best prices she has in the local market.

Sofia Yanjari

A woman walks through the foreign currency exchange houses in downtown Santiago.

Sofia Yanjari

Today the minimum wage is the equivalent of 471 dollars.

The inflation in May, however, is largely explained by the increase in the price of air passenger transport (in the last 12 months it has increased by 103.9%), the tourist package (66.3% in the last year) and food consumed outside the home (which have suffered an increase of 16.6%).

Food and non-alcoholic beverages in Chile have increased by 17.1% in the last year.

In a country where it is not cheap to stock up, and on many occasions the prices equal or exceed those of cities like Madrid or Paris, this increase in prices hits the pockets.

At this juncture, for most households it is prohibitive to think about indulging in luxuries such as traveling or eating out, something that in recent decades had become more common among the middle classes.

Measures against inflation in Chile are above all in the hands of the Central Bank, an autonomous body of the Government of the day.

The Executive, meanwhile, has tried to control the temptations on the part of the official political forces that clamor for greater state aid, in an adverse economic scenario.

President Gabriel Boric closed the door this week to a new Emergency Family Income (IFE), to help families during the southern winter.

“The proposal further increases inflation,” said the president, who as an opposition parliamentarian pushed in favor of state aid and the possibility for people to withdraw their savings for pensions, as it finally happened.

It was, according to the Central Bank itself, one of the elements that generated inflation.

Peru: much more than cooking oil

Between July 2021 and June 2022, the accumulated inflation in Peru was the highest in the last 25 years: 8.8% according to the National Institute of Statistics and Informatics (INEI).

The cost of living has not stopped increasing in the last 14 months.

Users of urban transport in Lima, Peru.Angela Ponce

Citizens make their purchases in the center of Lima.Angela Ponce

A spice vendor attends her street stall in Lima.Angela Ponce

In April, discontent over the rise in food and fuel prices led to protests, which were repressed with police violence and left a balance of deaths and injuries.

Days later, the Government eliminated the selective consumption tax on 84 and 90 octane gasoline and diesel until June 30.

According to the Central Reserve Bank of Peru (BCRP), with this exoneration, food prices fell around 14% in supermarkets, but most consumers buy in markets or on the street and do not perceive the drop.

In addition, the reduction in the price of gasoline depends on each service station and there is no way to guarantee that the benefit is transferred to the final consumer.

Until July, the Government also ordered the exemption of the general sales tax for chicken, eggs, sugar and supplies for bread and noodles.

Last year, the price of cooking oil grabbed all the headlines for its rapid increase, to the point that it was called "liquid gold".

To face the rise in the cost of living, in May the Executive paid an extraordinary subsidy of around 65 dollars to 1.3 million people in poverty and extreme poverty registered in the social programs of the Ministry of Development.

Economy Minister Oscar Graham also recently announced that a "food bonus" will be distributed to those affected by the rise in prices of the basic food basket, without specifying the amount or the date.

Family farming, on which some 2.5 million peasants depend, has been hit hard by the war in Ukraine.

In August, the peasants asked President Pedro Castillo for solutions to the shortage of fertilizers (which Peru imported from Russia).

Faced with the impossibility of resolving the reduction in the world supply of fertilizers, the Executive approved a subsidy of 90 dollars for the purchase of fertilizers from producers who cultivate less than two hectares.

A 50-kilogram sack of urea —a very popular inorganic fertilizer— went from costing 16 dollars to reaching 67, according to the agronomist Luis Gomero.

“Now it has gone down to 57 dollars in agrochemical stores,” Gomero said, but it is still triple the cost they were used to.

The Central Reserve Bank reported this month that since December 2020, the price of urea in Peru has risen 186% in the retail market, and sales have decreased by up to 40%.

Colombia: the highest interest rate in its history

Cassava is the product of the family basket that has risen the most in price in the last year in Colombia.

According to the CPI for May, published by the National Administrative Department of Statistics (DANE), this edible root rich in starches increased its value by 76% compared to the same month in 2021. In a supermarket in Bogotá, a kilo of cassava or cassava, as it is known in Brazil and Argentina, it costs 8,600 Colombian pesos (just over two US dollars).

12 months ago, it was worth 4,886 pesos.

The increase in cassava has affected millions of people for whom it represents one of the most important foods of daily consumption.

Many of the typical dishes in Colombia, such as sancocho or pastels, have yucca as the main ingredient.

People buy fruits and vegetables, in the Paloquemao market square, in Bogotá, Colombia.

It is estimated that the cost of living will rise to levels of 9.56 percent in the month of June. Nathalia Angarita

The neighborhood of San Victorino in Bogotá, one of the places where Colombians go to do all kinds of purchases.

Nathalia Angarita

A man makes his purchase of the month in the Paloquemao market, in Bogotá. Nathalia Angarita

A vendor takes out his bill in the Paloquemao market, in Bogotá. Nathalia Angarita

The other products that have increased the most in price in the last year are tomatoes, which rose 70.1%;

the onion, with a growth of 56.3%;

plantains, which increased their value by 35%, and arracacha, which reached 34%.

The fruits that have increased their price the most compared to the same month of the previous year are oranges and blackberries, with 34% and 31%, respectively.

Rice and milk have also become more expensive in the last year.

These foods make up the basic diet of Colombian households, so the rise in their prices has meant a drastic increase in the cost of living for families.

The increase in the price of these products is one of the reasons for the high annual inflation, which reached 9.23% in April, the highest in recent years, and 9.07% in May.

Given this situation, the board of directors of the Banco de la República decided this Thursday to apply the largest increase in its interest rate in history: from 6% to 7.5%.

Mexico: buy meat or buy medicine

A Mexican family spends, on average, 3,750 pesos ($185) a month on groceries, according to data from the National Institute of Statistics and Geography.

This is no longer enough to buy meat, chicken or pork, whose prices have skyrocketed.

The Mexican Meat Council reported increases of 35% on average, although some cuts have shot up to 300%.

Instead, Mexicans are eating more beans, a much cheaper vegetable protein.

When inflation dipped slightly in May, analysts considered the possibility that it may have peaked.

But this jumped to 7.88% again in June, reaching its highest level since 2001. Strikes by bus drivers broke out in the capital demanding that they be allowed to raise their fare by eight pesos ($0.40). as the price of gasoline was eating into his profits.

Meanwhile, the Government announced the Package against inflation and famine (PACIC), which includes a reduction in the tax on fuels and the elimination of the tax on ammonium sulfate, an essential component in the production of fertilizers.

Charging tolls on public roads was also prohibited.

Perhaps the most aggressive measure is the elimination of import tariffs on 21 of the 24 products that make up the basic basket.

Corn oil, rice, tomato, milk, lemon, apple and carrot, among others, may be imported into the country duty-free for six months.

In the first half of June, only a handful of these products registered a drop in price.

View of a refrigerator with meat in a supermarket in Colonia Roma, in Mexico City.Nayeli Cruz

A lady in front of the vegetable shelf in a supermarket in Mexico City.Nayeli Cruz

Food vendors on the 16 de Septiembre street in the historic center of Mexico City.Nayeli Cruz

Passers-by walk past a discount clothing store on Francisco I. Madero street in Mexico City.Nayeli Cruz

Finally, one of the harshest legacies of the pandemic has been the increase in the price of medicines.

Certain antibiotics, pain relievers and anti-flu have seen increases of up to 45% in their prices.

Argentina: an unstoppable spiral

Argentina is a country accustomed to inflation: it has had an average of 105% per year for the last 100 years.

In 1989, the index reached 3,079%, and only fell when in 1991 the Government of Carlos Menem applied convertibility by law (one Argentine peso equal to one dollar).

The scheme was blown up in 2001 and Argentina has been battling double-digit annual inflation ever since.

The current inflationary context found the South American country with a rise in the Consumer Price Index of 50.9% for the accumulated of 2021. Since then, the situation has only worsened.

May inflation reached 5.1% monthly and 60.1% year-on-year.

The most optimistic calculations estimate that it will comfortably exceed 70% in December.

A customer reads the newspaper inside a bar on Avenida de Mayo, during the longest blackout in Argentina's history up to that time, on June 16, 2019. NurPhoto (Getty Images)

A man on a bicycle in front of the Obelisk in Buenos Aires during the blackout. NurPhoto (Getty Images)

Customers eat breakfast at a bar without electricity, in Buenos Aires.NurPhoto (Getty Images)

Health, transport and food were the sectors hardest hit by the rise in prices.

Argentina is an exporter of grains and the efforts of the Government of Alberto Fernández have focused on decoupling international prices from those of the domestic market.

The preferred mechanism of the authorities has been the application of taxes on soybean and wheat exports, for example, while controlling increases in other strategic products such as fuels.

Gas, electricity and water receive millions in subsidies so as not to transfer the increases to households.

The strategy, however, is very expensive for the State.

Last year, contributions to energy companies totaled 11,000 million dollars, equivalent to 2.3% of gross domestic product.

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