Cost-of-living crises have lasting impact on inflation expectations, poverty, IMF says
SPY•IMF research found that cost-of-living crises can keep inflation expectations elevated, worsen poverty and threaten economic stability. Its new model suggests 23 million more people fell below the extreme poverty line from 2021 to 2024 than previously calculated.
1. Poverty and inflation
The IMF said sharp spikes in food and energy prices will likely become more common and can drive inflation expectations higher for longer, worsen poverty and threaten economic stability. A new model that accounts for poorer households’ higher inflation rates found a 0.8 percentage-point gap from the standard measure, suggesting 23 million more people fell below the extreme poverty line from 2021 to 2024.
2. Policy responses
Near- and medium-term inflation expectations rose significantly during cost-of-living crises and remained above pre-crisis levels even three years later. The IMF said targeted transfers were the best way to protect vulnerable people while preserving price signals; price controls and lower consumption taxes could cost governments three to six times more to implement, while producer subsidies could cost 22 times as much.
