Why inflation is so unpopular

Naomi Hossain

Some regular focus group participants discussing the cost of living. Sabiha explained that high food prices affected her child’s health, as she struggled to afford nutritious food like milk or fruit.

Whenever I tell economists about our ‘crisis’ research findings, that people on low incomes hate and fear the current wave of inflation, they look at me blankly. ‘But..’, they explain in terms simple enough for an infant to grasp, ‘wages rise’. Having abandoned economics at undergrad I forget whether this particular tenet is a vital one, but I get that economists don’t get the unpopularity of inflation because of their confidence – as in a fact of nature – that wages rise to compensate. So why should people complain? Let alone riot? Aren’t they just silly? Why has nobody told them about the natural laws of economics?

This last week I came face-to-face with two explanations of the unpopularity of inflation. This was in the Notun Bazaar slum in Dhaka, where colleagues at BRAC Development Institute have been researching how people cope with the ups and downs of global economic volatility since 2009. This is the Life in a Time of Food Price Volatility project, in partnership with Oxfam and partners in Bangladesh, Bolivia, Burkina Faso, Ethiopia, Guatemala, Indonesia, Kenya, Pakistan, Vietnam, Zambia, funded by DFID, Irish Aid, Oxfam GB and Oxfam America, as part of the Grow campaign on food justice.  Once again, we were told what cost more and what was cheaper than last year. We checked against last years’ data, and recall turns out to be pretty spot-on. The price of rice was slightly down on this time last year (the Food Ministry’s fortnightly foodgrain outlook agrees); but pretty much everything else was more expensive.

The posters show that this focus group was held in a room sponsored by an NGO tackling, among other issues, violence against women. NGOs also provide latrines and a school here. The woman at the centre right of the picture has been working as a childminder for a crèche in the ara, but it is reachig ‘date-fail’ – the project will soon end. Subsidised childminding services are a boon for the area, making it possible for many of Notun Bazaar’s mothers and grandmothers to work in the garments and domestic service industries.

The group of women – occasional garments workers, housemaids, paid and unpaid carers – with whom we meet regularly spoke simultaneously about the cost of living and the challenges of earning enough to live well. They talked about whose wages had risen, and why. The demand for garments workers has, they explained, squeezed the supply of maids. Middle class households have responded by paying higher cash wages but with more fixed terms than before: old mistress-servant relationships are increasingly replaced by those of employer-service provider. But with the old informality has gone a certain amount of paternalistic protection: ‘you get your pay packet, sure,’ one woman explained, ‘but that is it. No extras.’ For families that depend on casual work, higher wages compensate just fine for higher prices – but only when you are assured of those higher wages. And there are no job certainties for the Bangladeshi precariat. The vulnerability of your income matters more when prices are high than when prices (and wages) are low: the drop to nothing is far steeper in inflationary times.

Jamila explaining that last year’s large minimum wage rise in the garments sector wasn’t enough to cope with inflation: ‘things have stayed the same’ because prices rose so fast.

The second reason inflation is so unpopular is that wages don’t rise organically in response to inflation: you have to fight for them. While we were in Notun Bazaar, workers in the garment industry, Bangladesh’s main export and foreign exchange earner, had been protesting so ferociously about wages not keeping pace with inflation that employers shut down factories in Ashulia, a major centre for the industry.  Wages certainly rise when there is inflation, but only because of the dirty violent struggle that follows. Garments workers (and others) are surely right to hate and fear inflation, because there is nothing invisible about the hand that makes their wages rise.

Naomi Hossain is a Research Fellow in the Participation, Power and Social Change research team at IDS.

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