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The Ukrainian war has driven up the cost of living around the world. But it’s not the only reason for an alarming global inflation spike

Inflation is a silent killer. It destroys economies, ravages social structures and can even lead to the downfall of governments. This is because inflation causes prices to rise, and when prices rise too much, it creates chaos. We are currently seeing inflationary pressures all around the world, threatening to destroy the delicate balance that we have maintained for so long. Inflation is projected to drive millions of people into poverty in the coming months, exacerbating existing social tensions and leading to even more instability.

Inflation is often thought of as an economic phenomenon, but it is really a social one. It is the interaction between people that drives prices up, and it is the same interaction that can lead to violence and unrest. When the cost of living goes up, for instance, more people can no longer afford to buy basic necessities. This leads to frustration and anger, pitting people against each other in a fight for survival. We have seen this throughout history, in episodes of high inflation or hyperinflation.

Inflation plagues all countries, but some are more susceptible to it than others due to a variety of factors. Some of the drivers of the ongoing global inflationary pressures are believed to be the Ukrainian war, the Covid-19 pandemic, and climate change. These factors have all contributed to a rise in the cost of living, putting a strain on people worldwide. 

But some, such as Stanford economist John Taylor, argue that these factors have not been the primary cause of the current inflationary spike. "Yes, there are international factors, such as the global supply chain and the Russian invasion of Ukraine," he said in a recent interview. "However, inflation started rising before these international factors appeared. It is good to counteract these developments for many reasons, including that it is a matter of maintaining peace and prosperity around the world. However, the Ukraine conflict and supply bottlenecks are not reasons for the large rise in inflation."

Destructive stimulation

Instead, he attributes it to the loose monetary policy pursued by many central banks in recent years. This policy, known as quantitative easing, is when a central bank creates new money and uses it to buy government bonds or other financial assets. This increases the money supply and puts downward pressure on interest rates. It is intended to stimulate economic activity by making it cheaper for people to borrow money. Turkey is one of the countries that has been pursuing this policy in recent years, and it has led to a dramatic increase in inflation.

Some of the countries that are worst affected by inflation include Venezuela, Zimbabwe and Argentina. In Venezuela, inflation reached an all-time high of nearly 200,000% in 2018, largely due to the oil-rich country's political and economic turmoil. This led to a near-complete collapse of the economy and a mass exodus of citizens. In 2022, it continued to have the highest inflation rate in the world at 1,198%.

Zimbabwe is another country that has been ravaged by inflation. The southern African nation’s rate gradually increased from 2000 to 2004, at which point it reached 114%. By 2008, it had climbed even higher to 157%, and then in 2020, it peaked at 558%. This has caused widespread poverty and political instability. And in Argentina, inflation has been a problem for many years. Recently, Reuters reported that inflation there could reach 95% this year. The high inflation rate coincides with an increase in crime in parts of the country, including the capital city of Buenos Aires.

Totalitarian consequences

Inflation can have devastating consequences, both socially and politically. One of the most notable examples of this is the German hyperinflation in the early 1920s. The inflationary spiral was set off by the cost of funding Germany's reconstruction after the first world war and reparations payments to the Allies. By mid-1922, the German mark had lost 90% of its value; by November 1923, it was worth just one-trillionth of its original value. This led to mass unemployment, poverty and social unrest. After Germany failed to make its first reparations payment in November 1922, French and Belgian troops occupied the Ruhr region, which was the main industrial area of Germany. Their goal was to confiscate goods to make up for the unpaid reparations. This led to a general strike by German workers, further exacerbating inflation. 

Another example is the Chinese inflation in the 1930s and 1940s. This was caused by the Chinese civil war, which led to a massive increase in the money supply to fund the war effort. In June 1937, $1 was exchanged for 3.41 yuan, but by May 1949, that amount bought more than 23 million yuan. This led to widespread poverty and hunger, as well as social unrest. Inflation was finally brought under control in the 1950s by Chinese leader Mao Zedong. He instituted a series of reforms, including price controls and the collectivisation of agriculture.

Many people see the rise of Mao in China and Hitler in Germany as being a direct result of the social unrest caused by inflation. Inflation can have many negative consequences, including high unemployment, poverty and political instability. The current spike could have similarly devastating consequences if it is not brought under control. This week, Italy elected Giorgia Meloni, a far-right politician, as its new prime minister. Elsewhere, we have seen the rise of populist and nationalist politicians who are exploiting the economic insecurity caused by inflation. From the United States, where Donald Trump was elected on a promise to "make America great again" in 2016, to Brazil, where Jair Bolsonaro has been described as the "Trump of the Tropics", we are seeing a global trend of politicians capitalising on economic anxiety.

Written by: Olivium staff


Fee: Hyperinflation in Germany

Fee: The Great Chinese Inflation

Christian Science Monitor: Hyperinflation led to Hitler and Mao. What will China's currency manipulation lead to?

Spurlock Museum: 1920s hyperinflation in Germany and bank notes

BBC: Jair Bolsonaro: Brazil's firebrand leader dubbed the Trump of the Tropics

Anadolu Agency: Crime on rise in Argentina's Buenos Aires province

GMF: Erdoğan’s gamble with Turkey’s economy

The Guardian: Inflation bites hardest in developing world as Ukraine war raises prices

The Conversation: Inflation is spiking in Zimbabwe (again). Why high interest rates aren’t the answer

Stanford: What causes inflation? Stanford scholar explains

Reuters: Argentina's inflation rate expected to hit 95% this year

New York Times: Giorgia Meloni wins voting in Italy, in breakthrough for Europe’s hard right

BBC: The Weimar Republic 1918-1929

World Population Review: Inflation rate by country 2022

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