The International Monetary Fund (IMF) warns that sharp increases in food and energy prices could become more frequent, keeping inflation expectations high for an extended period, exacerbating poverty, and threatening economic stability.
An IMF study published on October 6th analyzes the measures governments have taken over the past three decades to respond to price increases, while also employing a new economic model that takes into account the higher inflation faced by poorer households due to having to allocate a larger proportion of their budgets to necessities.
Sharp price increases for essential goods are not common, especially on a global scale. However, over the past five years, price shocks have consistently exerted economic and social pressure, including the impact of the Russia- Ukraine conflict since 2022 and the fighting in the Middle East this year.
New IMF research shows that the actual inflation faced by households is 0.8 percentage points higher than the inflation calculated using conventional methods. Therefore, the IMF estimates that the number of people falling below the extreme poverty line between 2021 and 2024 could be 23 million more than previously estimated.
Last month, the IMF said the global economy had responded better than expected to the energy shock caused by the conflict in the Middle East and still projected growth of around 3% in 2026. However, the financial institution warned that risks remain high.
This forecast is lower than the average growth rate of 3.5% in 2024 and 2025. The IMF notes that short- and medium-term inflation expectations rise significantly during cost-of-living crises and remain noticeably higher than pre-crisis levels even three years later.
Inflation expectations for the next five years were initially set to rise only slightly, but they have remained high for three years. This could put further pressure on central banks to raise interest rates.
According to the IMF, targeted direct support is the most effective way to protect vulnerable groups while maintaining price signals in the market. Conversely, price-suppressing measures such as price controls and consumption tax cuts can cost governments 3-6 times more, while subsidies for producers can cost 22 times more.
Widespread support measures can also be ineffective if many countries simultaneously implement subsidies. Chiara Maggi, an IMF economist and co-leader of the study, argues that subsidies for producers are particularly ineffective because they can lower the prices of goods that are subsequently exported, effectively subsidizing consumers abroad.
Professor Shantayanan Devarajan of Georgetown University and former World Bank economist argues that developing countries are under immense pressure due to rising oil prices, high debt, increased borrowing costs, and the anticipated impacts of this year's super El Niño weather phenomenon.
According to Mr. Devarajan, some countries such as Egypt and Indonesia have begun shifting from widespread subsidies to targeted cash assistance. He urged countries to accelerate reforms to boost growth and mitigate the negative impacts of conflict in the Middle East.
Source: https://www.vietnamplus.vn/imf-canh-bao-nguy-co-gia-tang-cac-cu-soc-gia-luong-thuc-nang-luong-post1140421.vnp
