Lecture Notes: Poverty and Inflation

What is Inflation?

• Definition: Inflation is the increase in prices of goods and services over time.
• Causes:
  • Shortage of raw materials.
  • Increased demand for products and services.
  • Higher oil prices, affecting production and delivery.

Relationship Between Poverty and Inflation

• Inflation exacerbates poverty.
• Affects people in lower-income households severely by increasing costs of essentials like gas and food.
• Leads to a decrease in the real value of minimum wage worldwide.

Why Inflation Hurts the Poor More

• High-income households can better cope with inflation.
• Low-income households lack control over purchasing power and have jobs with non-adjustable wages.
• Low-income earners spend a larger portion of their budget on essentials versus luxury items.
  • E.g., food costs: 17% in advanced economies vs. 40% in sub-Saharan Africa.
• This phenomenon is termed "inflation inequality."

Impact on Real Minimum Wages Globally

• Inflation reduces the real minimum wage, worsening poverty.
• World Bank survey shows real wages fall by 14% with doubling inflation.
• Nominal wages remain unchanged, but inflation increases living costs, reducing purchasing power.

Difficulty in Escaping Poverty

• Affects food availability and nutrition, leading to hunger and malnutrition.
• Malnutrition in expecting mothers affects child development and life expectancy.
• Inflation perpetuates generational poverty cycles.

Impact on Child Development

• Lack of nutrition leads to physical, emotional, and cognitive development deficiencies.
• Malnutrition increases disease risk and reduces life expectancy.
• Stress and instability in children's lives due to inflation.

Global Conflict and Inflation

• War in Ukraine affects global food prices, impacting vulnerable populations.
• Russia and Ukraine are major exporters of wheat and corn.
• Rising oil prices increase food production and transport costs.
• Africa is particularly vulnerable due to dependence on imports and increased costs.

Compassion's Role in Mitigating Inflation Effects

• Not covered in the transcript but implies involvement in global aid and support to vulnerable families.

Inflation, the increase in prices of goods and services, disproportionately harms low-income households. Higher costs for essentials like food and fuel severely impact those already living hand-to-mouth, reducing their purchasing power and lowering real minimum wages. This is especially true in regions like sub-Saharan Africa where food makes up a much larger portion of household expenses. The war in Ukraine has exacerbated this problem, disrupting global food supplies and increasing prices further. Malnutrition and food insecurity, already prevalent issues in poverty-stricken areas, are worsened by inflation, impacting physical, cognitive, and emotional child development, and perpetuating cycles of poverty across generations. While the transcript doesn't detail Compassion's specific actions, it implies their involvement in providing aid and support to vulnerable families facing these challenges.