Will food price inflation incite further social unrest?

With a faltering global recovery and depressionary unemployment due to Covid-19, social unrest can easily be incited. While disruptions in the food supply chain have been minimal so far, the UN Food and Agricultural Organisation has reported that global food prices have risen for the third consecutive month in August.

Signs of social unrest are becoming more visible as the Covid-19 crisis continues. Last week saw demonstrations in different parts of the world, where millions protested against lockdowns and other corona-related measures.

With a faltering global recovery and depressionary unemployment, further social unrest can easily be incited. Especially with this week’s news of rising food price inflation. At an earlier stage of the pandemic it was already clear that low-income households were particularly crushed by the inflation caused by unprecedented money printing by central banks. Due to higher grocery and housing costs, it has been estimated that the bottom 10% of households by income face inflation of 1.5% while those in the top 10% face 1%. If we add concerns about investors being bailed out ahead of firms and workers, the gains from quantitative easing flowing to the asset-owning group, and blue-collar workers being more exposed to the virus due to lack of opportunities of remote working, the problem of inequality is rapidly exacerbated during the corona crisis.

Since the start of the crisis, the Food and Agricultural Organization of the United Nations has taken measures to ensure that food supply chains are kept alive to mitigate the risk of large shocks. Despite minimal disruptions in the food supply chain so far, challenges have been experienced in terms of logistics. The FAO already noted that while shocks would impact everybody, they would be particularly hard for the poor and most vulnerable. Their situation is expected to become more dire as the FAO concludes in its most recent report that global food prices have risen for the third consecutive month in August.

The news about food price inflation came around the same time as the Federal Reserve’s statement that its new approach would tolerate prices overshooting the 2% inflation goal. Bloomberg has noted that an overshoot of inflation in the near term will be difficult. Should the economy recover in the next few years, however, the flooding of the system with money in recent months may make inflation impossible to control.

With out of control inflation being a concern for the long term, at present the risk of deflation is very real. Eurostat has estimated that inflation will be -0,2% for August 2020. This negative inflation is only interpreted as deflation if a general price drop continues for a prolonged period of time.