Further Increase in Inflation launches Increase in Social Inequalities

While the global economy has not yet been able to leave the Covid-19 pandemic irrevocably behind and go unaffected, at the same time, distortions are being created in the global socio-economic context which will surely lead to negative developments.

Given the very serious and persistent increase in raw material prices combined with the existing negative interest rates, the situation leads to continuous increases in the prices of products and services. The immediate result of this mix is ​​a correspondingly steady decline in citizens’ disposable income and purchasing power.

The economies of the countries, after the strongest negative shock in the supply due to the repeated financial shutdowns to deal with Covid-19, and in combination with the reduced demand and production, has created additional complications with the gradual opening of the economies.

Due to the deep crisis and recession during the pandemic, deflation did not occur mainly due to the continuous expansionary monetary policy. In the current period, with production and supply chain problems continuing, prices have risen while economies have not reached their optimum level of growth.

Many times, especially in the EU, the way inflation is calculated does not fully include the products and services it needs, with the result that the picture of inflation does not correspond to reality.

As inflation continues to gallop, central banks are keeping interest rates low to avoid a tsunami of bankruptcies in households and businesses. In an optimal economic environment, an increase in inflation would also mean an increase in interest rates to contain inflation.

In order to examine how each country is affected individually by this common framework of inflation and near-zero interest rates, the particular conditions prevailing in each country must also be considered. Formal unemployment, like inflation, does not reflect reality, and given that in the Eurozone, part-time work is not taken as unemployment.

The same is true for the low paid, where in some member countries the unemployment benefit exceeds the salary of the low paid in other member countries. As inflation continues to rise, income inequalities will widen, widening social inequalities accordingly.

After the end of the pandemic, these inequalities will have widened even further. In this context, inequalities are widened even further by rising rents and the cost of owning a home, causing further problems for a significant portion of citizens, especially young people who are usually paid the lowest wage.

The increase in rents and the cost of home ownership in general is due to the continuous and chronic monetary policy (quantitative easing) and the huge liquidity that exists in the economies. With a salary of 800 euros and a rent of 400-500 euros, one cannot live alone or start a family.

It has a direct impact on the fertility rate and demographics of many member-countries. The role of states in addressing these challenges is of paramount importance and given that new political-economic-social tools-policies are needed to tackle these problems at their root.

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