In many countries, the cost of living crisis is taking a toll on the economy. This is due to a rise in food and fuel prices, tightening financial conditions, and an increase in debt distress. Some countries are dealing with this by raising taxes and others by introducing new regulations.
Rise in food and fuel prices
The rise in food and fuel prices is a key factor in the global cost of living crisis. During a period of high inflation, millions of people have been pushed into poverty. Whether they are in the developed or developing world, their lives are being disrupted by skyrocketing prices of essentials.
A once-in-a-generation cost of living crisis is affecting households worldwide. Among the most vulnerable are poorer households, which spend a greater proportion of their income on food. These households are also less likely to have access to credit or other financial tools. And as the economy tightens, these families may face vicious cycles of hunger and poverty.
Food price inflation is largely determined by the cost of production. As labor and input costs increase, the price of staples like meat, eggs, and fish rises. In 2022, the price of these commodities is projected to rise 18%.
Another key factor in the cost of living crisis is the rise in energy and fuel prices. A war in Ukraine has caused a spike in fuel and gas prices. Sri Lanka, Pakistan, and Peru are among countries experiencing social unrest due to rising prices.
Increase in debt distress
The cost of living crisis is affecting the world's most vulnerable. It affects everything from energy access to education. This includes the cost of healthcare and pensions, which will continue to be a drag on discretionary spending.
However, the effect of debt on health has not been extensively studied. Although studies have shown that carrying more debt is associated with poorer mental health, the link is unclear. In the present study, we examined the association between change in household debt and general health measures, including suicidal ideation.
We found that households with higher levels of debt were more likely to report frequent mental distress. The findings also indicated that a change in household debt was associated with increased frequency of suicidal ideation.
These results suggest that a specific debt-relief program might be required to address the adverse effects of indebtedness on health. However, effectiveness of such programs may be influenced by awareness of the issue and ease of use.
Tightening financial conditions
The cost of living is taking a toll on many households. Rising food and fuel prices are eroding real incomes. Moreover, the lingering COVID-19 pandemic has already started to have an impact. Having said that, the global economic landscape is in a precarious state, as a number of large developing economies are experiencing their own inflationary calamities.
In order to make sense of all this, it's best to look at the larger picture. Specifically, what can be done to minimize the impact of these costs. For instance, structural reforms could help boost productivity, while boosting the fiscal position of governments.
It's not surprising that many countries are experiencing a slowdown. Large capital outflows have contributed to these pressures. This, coupled with the fact that inflation has returned with a vengeance, leaves many nations with less than sufficient fiscal room for manoeuvre.
In a time when reducing global warming is a top priority, a multilateral approach is needed to implement the transition to greener energy sources. While a single country might be able to tackle the issue on its own, it is better to get the entire world involved.
Impact on lower income countries
A cost of living crisis is hitting households around the world. However, it is disproportionately affecting poorer households. This is because of their higher expenditure on essentials such as food and fuel. These are a greater share of their budgets, which leaves them less room for savings.
The crisis is also impacting people's health. Low-income people are not able to afford the energy needed to keep their homes warm, which can lead to death and respiratory diseases. In addition, they are facing malnutrition, which can exacerbate heat-related health problems.
To address this, governments must ensure that people have access to essentials. They should also provide targeted support to the most vulnerable. For example, some countries offer cheaper tariffs to low-income households, and others finance social welfare schemes.
However, these initiatives can become costly to government budgets. Moreover, they perpetuate the cycle of poverty. Therefore, the right intervention strategy should be tailored to the needs of each country.