War, protest and spiking prices: How spiraling inflation is setting the world on fire

In each case, the protesters — Sri Lankan students, Zimbabwean nurses, Indigenous groups in Ecuador — were demanding action to deal with spiraling prices. Welcome, in other words, to the season of inflation unrest.

“There is real, real pain. People are suffering,” Paikiasothy Saravanamuttu, one of Sri Lanka’s leading political commentators and the executive director of the Colombo-based Center for Policy Alternatives, told Grid, talking about the situation in his country. “That is very visible in the popular protests we have seen.”

But rising prices are — despite the vast distances separating these and other countries where ordinary people have taken to the streets — a common thread, as significant swathes of the world experience inflationary spikes in the aftermath of the pandemic.

“This is definitely a global problem,” Kimberley Sperrfechter, an economist at the London-based economic consultancy Capital Economics, told Grid. “You see, for example, inflation not just in emerging markets, but also in the U.S., the U.K., in the eurozone at record highs. This is something that was already materializing last year,” as the world began emerging from the pandemic, which, among other things, widened inequalities.

And then, Sperrfechter pointed out, came the war in Ukraine.

The Russia factor

The invasion of Ukraine has added fuel to the inflationary fire, driving up food and fuel prices globally. “It exacerbated the problem,” Sperrfechter said.

The impact on food prices has already sparked unrest.

Sri Lanka, too, is seeking an IMF bailout; again, the spiraling cost of food has made the needs of the government ever more urgent. The country’s Prime Minister Ranil Wickremesinghe acknowledged in a recent interview that while many of the island nation’s problems were of “its own making,” the Ukraine conflict had made things harder. “The Ukraine crisis has impacted our … economic contraction,” he told the Associated Press. “I think by the end of the year, you could see the impact in other countries.”

Fuel prices have also been affected by the Ukraine War and have been feeding into the cost of goods and services worldwide. Here, again, the reason is clear when you look at Moscow’s influence in the energy market: Russia is third only to Saudi Arabia and the U.S. when it comes to producing oil. And sanctions on the Kremlin have raised concerns about global supplies, driving up the cost of oil.

The final straw

This instability comes as the world haltingly recovers from the ravages of the covid-19 pandemic. A key factor here is the reopening of the world: Historically, pandemics have, overall, led to a drop in unrest. That’s what happened with covid-19, according to data gathered by economists at the International Monetary Fund.

“When a pandemic such as the latest one ends, we should expect unrest to rise again,” Philip Barrett, an economist at the IMF, told Grid. “Interestingly, epidemics seem to be different from other natural disasters like floods, storms, earthquakes etc., where unrest typically does not fall as in pandemics. We think that this hints at a mechanism — that being in large crowds is particularly unappealing when there is a dangerous communicable disease circulating.”

Barrett highlights four major drivers behind unrest. Leading the list, unsurprisingly: local, country-specific factors. Next, whether or not a nearby country has seen similar upheavals. Then, in the present context, the impact of the pandemic, followed by the impact of inflation.

“The impact of prices of food and fuel, which have spiked dramatically on account of the war in Ukraine,” Barrett told Grid, “this will undoubtedly put pressure on the budgets of families in countries where affected staples — wheat and corn perhaps most obviously — are a large part of expenditure.”

Rising food and fuel prices have, Sperrfechter of Capital Economics told Grid, acted like a “spark,” inflaming tensions that were already building up in the aftermath of the pandemic. “It is has acted like a spark that has set everything off,” she said, “It is one factor of many, but it is like the final straw.”

Dig into the numbers, and it is clear that in some places, the concern is near universal. In Spain, where consumer inflation recently touched record highs, Deloitte said 88 percent of people were worried about rising prices.

And there doesn’t appear to be any end in sight, at least not in the near term — international prices rises are expected to average around 6.7 percent this year, which is more than double the average of 2.9 percent recorded between 2010 and 2020, according to the U.N.

But when will things get better? “It hard to predict, but one concern is definitely that the war [in Ukraine] continues to go on, and commodity prices remain high,” Sperrfechter, from Capital Economics, told Grid. “That is probably one of the biggest concerns.”