Response to High Food, Energy Prices Should Focus on Most Vulnerable

 Nota completa

Governments confront difficult policy choices as they try to shield their people from record food prices and soaring energy costs driven higher by the war in Ukraine.

 

Countries introduced a variety of policy measures in response to this unprecedented surge in prices of the most crucial commodities. Our survey of these announced measures by member nations shows that many governments tried to limit the rise in domestic prices as international prices increased, either by cutting taxes or providing direct price subsidies. But such support measures in turn create new pressures on budgets already strained by the pandemic. 

 

Limiting the price pass-through is not always the best approach. According to a new IMF note, policymakers should allow high global prices to pass through to the domestic economy while protecting vulnerable households affected by the increases. That’s ultimately less costly than keeping prices artificially low for all irrespective of their ability to pay.

 

Not all countries are able to follow the same path. Where subsidies exist, the pacing of price adjustments and the extent to which social safety nets are used will differ from country to country. That’s why our note offers nuanced policy advice for countries depending on individual country circumstances, such as the strength of the social safety net, the level of existing food and fuel subsidies, and the availability of fiscal space. 

 

Soaring prices 

 

Russia’s invasion of Ukraine followed last year’s steep gains in commodity markets, pushing food prices to a record and natural gas to historic highs. Prices for wheat, a staple in which Russia and Ukraine together account for about a quarter of global exports, are up 54 percent from a year earlier. With food and energy imports from these sources disrupted, countries face high costs and uncertainty about supplies. //