That terrible ‘70s show
Whereas GDP statistics are not well understood, and unemployment or stock prices affect only some sections of the society, one economic indicator that is readily understood, and disliked, by everyone, everywhere in the world is high and rising inflation. This is the first of a two-part article. The second part will be published tomorrow
The 1970s was a great decade for movies involving a certain kind of character — usually, a man, all-too-often angry, in Billy Joel's words, one who "refuses to bend, refuses to crawl". Men like Clint Eastwood in "Dirty Harry", Charles Bronson in "Death Wish", and Robert De Nero in "Taxi Driver", Razzak in "Rangbaaz".
Amitabh Bachchan is, of course, practically synonymous with the words "angry young man". His fictionalised portrayal of Haji Mastan (aka Sultan Mirza) in "Deewaar", a real-life don of Bombay's underworld, being perhaps the most iconic of such roles.
Anti-heroes and angry young men — resonated with audiences all over the world, because the 1970s was a time when, across the world, there was socio-economic instability and malaise. It was a time of high inflation, and stagnation.
Whereas GDP statistics are not well understood, and unemployment or stock prices affect only some sections of the society, one economic indicator that is readily understood, and disliked, by everyone, everywhere in the world is high and rising inflation.
Inflation means rising cost of living. When inflation outpaces wages, there is a cut in real income. When inflation is high, savers' wealth is devalued. Rising or volatile inflation makes it difficult to plan for the future, affecting investment, employment, and incomes. The effects on people's living standards are palpable.
Inflation also feeds into social malaise and discontent in less tangible ways. Historically, high and rising inflation had been the times when rulers debased their metallic coins, often to pay for ruinous wars. In a modern economy, volatile inflation is often the result of macroeconomic mismanagement.
There is probably something akin to folk memories of inflation being associated with a society that is coming apart at the seams, where those in charge have abdicated their responsibility, where an honest person cannot afford "Roti, Kapada aur Makaan" (a 1974 blockbuster about, you guessed it, young men who cannot lead a decent life through education and hard work).
Inflation and stagnation, the stagflation of the 1970s created the zeitgeist that gave us the onscreen anti-heroes and angry young men.
Inflation is rising again across the world, often to rates not seen in decades. For example, inflation hit 7% in December of 2021, a rate not seen in nearly four decades. In emerging markets and developing economies, the rise in inflation has been broad-based. Food price inflation is running at an elevated level, but as Chart 1 shows, core (that is, non-food, non-energy) inflation also picked up in 2021.
Adjusted for income, food has not been this expensive since the 1970s. Policymakers and investors alike have been surprised by the inflation, which has been thus far driven by supply and demand mismatches as the world economy recovers from the pandemic.
Households in the developed world have built up a large amount of savings in the last couple of years. Supported by government handouts and unable to spend freely because of recurring Covid-19 waves, these cashed up consumers have gorged on online shopping. Global logistics and supply chains have not been able to handle the demausing disruptions (Chart 2).
Inflation has also been ticking up in Bangladesh, to cross 6% in the year to December 2021, with non-food price inflation hitting 7% over that period (Chart 3). Compared to the government forecast of 5.3% inflation for the financial year 2021-22, this rate of inflation seems like a lot.
Inflation is also tracking ahead of the IMF's October 2021 forecasts. According to Bangladesh Bank's Monetary Policy Statement for financial year 2021-22, inflation of 6% was considered an extremely unlikely outcome by the central bank only a few months ago.
That is, much like elsewhere, inflation in Bangladesh is already on the upside, and the benign inflation forecasts, whether by the Bangladesh Bank or the IMF, must bear considerable upside risks.
Jyoti Rahman is an applied macroeconomist. His analyses are available at https://jrahman.substack.com/
Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.
