What is inflation?

Inflation, an economic term, means a decrease in consumers’ buying capacity (purchasing power). The immediate impact of such a phenomenon is the sharp increase in the prices of commodities. Inflation is determined by the degree of rise in the price level over time and the extent to which the value of money diminishes due to an increase in the price level.

The reasoning behind inflation is the relationship between the law of demand and the law of supply.

What is food inflation?

Food inflation is the rise in the price of food commodities. It is a dynamic concept. The increase in production, labour and transportation costs, population and climate changes, hoarding of food products, and land exploitation cause food inflation. The adverse effects of food inflation are discussed below.

Effects of food inflation

The following are the effects of food inflation:

  1. Rise in production and labour costs: Factories and industries face losses during food inflation. This increases carrying costs incurred during production. Carrying cost includes increasing the price of raw material, labour, conduction and ancillary inputs required to produce the commodity.
  1. Leads to speculation: Speculation is a consumer’s irrational sentiment that induces them to speculate about a change in the price of a commodity. This causes a change in demand and supply and leads to hoarding. For instance, if a natural disaster has caused rice fields to be washed away, consumers may speculate the supply will decrease sharply and purchase more quantities of rice.
  1. Hoarding of food products: Hoarding of commodities is directly related to speculation. In the example discussed above, consumers will hoard bags of rice in order to be able to feed their families when a famine strikes. This will lead to restricted access to food supplies for some communities.
  1. Undernourishment: Experts have studied the relationship between food inflation, undernourishment and infant mortality rate. Food inflation leads to a food crisis. Shortage of food leads to lesser access to high-quality food for the poor, leading to undernourishment among the poor. Food inflation of 1 per cent leads to an increase of 0.5 per cent in undernourishment.
  1. Infant mortality rate: It is the number of newborns who fail to survive beyond 11 months for 1000 births. Food inflation leads to a food crisis. This restricts households’ access to necessities, causing an increase in the infant mortality rate. An increase of 1 per cent in food inflation leads to an increase of 0.3 per cent in infant mortality rate.
  1. Jobs: Food inflation will cause factories to terminate their employees due to reduced demand from the consumers. The scope of employment will thus fall sharply. This would mean the unemployed would not be able to find a job. Mass unemployment will make it harder for the poor to handle the situation of food inflation.
  1. Productivity of agricultural land: To curb the food crisis, the government would try to generate more produce from the agricultural lands. This will result in the government demanding more output from the agricultural lands by employing more farmers.
  1. Government schemes and policies: Government schemes and policies are introduced to enable the poor to get more cash. This increases cash circulation in the economy and reduces the tax burden of the general public. Even though they come with such benefits, they increase the cash flow in circulation and the demand for commodities. This would induce more demand and ultimately cause inflation. Hence, the government will contravene such policies and schemes to control inflation. As a result, people who enjoy the benefits of such policies will lose them. This would increase the burden on the poor.
  1. Migration: As mentioned before, food inflation leads to mass unemployment. The unemployed migrate from rural to urban areas or otherwise search for job opportunities.
  1. Rising input costs: Reports have revealed a significant increase in the cost of agricultural labour in recent years. Inflation causes a rise in the price of commodities. This implies a hike in the price of inputs needed for producing or manufacturing. When the cost of inputs rises, the retail or market price increases, causing a food crisis.
  1. Internal control: Increase in the cost of necessities due to inflation leads to an increase in the cost of living. The working sector of the economy demands a higher salary or wage to sustain the conditions. As discussed earlier, companies generally incur losses during inflation. Hence, it becomes difficult for the company to offer higher salaries.

 Conclusion

Food inflation as a global phenomenon has become increasingly common in recent times. Precautions must be taken to survive in such inflationary conditions by individuals, companies and governments.