By Salome Ecker, George Gray Molina, Eduardo Ortiz Juarez
The first months of 2022 saw an accelerated spike in international food and energy prices as a result of the war’s spillover effects in Ukraine. From May to September 2022, he saw food prices fall and natural gas and coal prices continue to rise. Currently, low- and middle-income countries mainly face food crises, while high-income countries mainly face energy crises. Policy responses are also split, with subsidies accounting for about 40% of responses and cash and in-kind benefits accounting for 39%. There are enormous inequalities and inefficiencies at work. About 53% of transfers and subsidies are spent in high-income countries, while low-income countries account for only 1% of the policy response. On average, for every US$1,000 spent per month on a universal subsidy he can prevent one person from falling into poverty, but if the same amount is spent on targeted cash transfer schemes, this number increases to 2.7. The cost of living crisis is not over yet. In fact, it makes other crises even worse.
The repercussions of the war in Ukraine have significantly disrupted energy and food markets and fueled a sharp rise in international prices for key commodities. Pandemic recovery coupled with relatively constrained supply. In a previous report, Addressing the Cost of Living Crisis in Developing Countries: Poverty and Vulnerability Projections and Policy Responses, we discussed the potential short-term effects of war-induced food and energy price hikes on household welfare. documented impact. Using food and energy inflation levels recorded between October 2021 and April 2022, the number of people in extreme poverty in 2022 will rise to 51.6 million globally It was predicted to reach a maximum of 71 million people. It also aggravates the living conditions of the existing poor. More recent estimates show that at least 70 million people will be in extreme poverty this year compared to what would have been expected had the pandemic, war, food and energy inflation and climate-related shocks not occurred. It is expected that there will be.
As shown below, food and energy inflation accounted for about 40% and 18%, respectively, of global inflation during the period of inflation considered in the previous report. Since then, however, the relative contribution of food inflation has declined significantly, while that of energy inflation has moved in the opposite direction. We anticipate a reverse U policy response path, with new and existing subsidies rising first during price spikes, followed by gradual increases in subsidies to pre-crisis levels. This is because public finances have become unsustainable and distorted, or simply because energy prices have fallen and price caps have been removed (Figure 1).
The current situation may provide an opportunity for a fresh reset of the expected policy response trajectory. This takes into account the intertwined climate emergency and social protection challenges.