War, protest and spiking prices: How spiraling inflation is setting the world on fire

Nikhil Kumar

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This is just a partial snapshot of what happened in June: In Zimbabwe, striking nurses and doctors brought state-run hospitals to a standstill for almost a week; in Ecuador, angry protesters paralyzed the capital, Quito, attacking government buildings and clashing with police; next door, in Peru and also in Argentina, truckers went on strike; and on the other side of the world, opposition parties held protest marches across Pakistan, while in nearby Sri Lanka, a popular uprising that has already unseated the patriarch of the country’s most powerful political family as prime minister continues unabated.

In each case, the protesters — Sri Lankan students, Zimbabwean nurses, Indigenous groups in Ecuador — were demanding action to deal with spiraling prices. Welcome, in other words, to the season of inflation unrest.

“There is real, real pain. People are suffering,” Paikiasothy Saravanamuttu, one of Sri Lanka’s leading political commentators and the executive director of the Colombo-based Center for Policy Alternatives, told Grid, talking about the situation in his country. “That is very visible in the popular protests we have seen.”

To be sure, in each case, there are important local factors at play. As Grid has previously reported, in Sri Lanka, a mountain of foreign debt has crushed a fragile domestic economy. In Zimbabwe, healthcare workers, who came out to demand higher wages, saw their pay crash precipitously when the local currency collapsed in 2019. In Ecuador, in addition to calling for action to contain soaring fuel prices, protest leaders also demanded action on a variety of other fronts, including calls for right-wing President Guillermo Lasso to introduce curbs on mining projects.

But rising prices are — despite the vast distances separating these and other countries where ordinary people have taken to the streets — a common thread, as significant swathes of the world experience inflationary spikes in the aftermath of the pandemic.

The pain is being felt worldwide — in less well-off, emerging and developed economies. Inflation in the U.S. is at a 40-year high; as Grid has reported, ordinary consumers are seeing prices go up everywhere, in energy, in food and in housing. On the other side of the Atlantic, prices are also rising across the eurozone and in the U.K.; Britain’s former leader Gordon Brown recently said inflation was a “global problem that needs a global solution.” In Ireland, the government is looking at ways of stepping up public spending to help ease the pressure on an increasingly discontented population, after thousands took to the streets to protest against an inflationary surge not seen since the 1980s.

“This is definitely a global problem,” Kimberley Sperrfechter, an economist at the London-based economic consultancy Capital Economics, told Grid. “You see, for example, inflation not just in emerging markets, but also in the U.S., the U.K., in the eurozone at record highs. This is something that was already materializing last year,” as the world began emerging from the pandemic, which, among other things, widened inequalities.

And then, Sperrfechter pointed out, came the war in Ukraine.

The Russia factor

The invasion of Ukraine has added fuel to the inflationary fire, driving up food and fuel prices globally. “It exacerbated the problem,” Sperrfechter said.

As Grid has reported, Russia and Ukraine are central to the world’s food supply, the starting point, in fact, in the supply chain that brings basics such as wheat, barely and sunflower oil to places as far afield as Egypt, Lebanon, Thailand and Indonesia.

With war blocking critical supply routes in the Black Sea, the cost of these essentials has gone through the roof. Compared with January, wheat prices, for example, are more than a third higher, according to the latest World Bank figures.

The impact on food prices has already sparked unrest.

Protests in Chile in late March were driven by demands for an increase in food subsidies. In Iraq, there were protests in the south of the country earlier this year amid sharp increases in the price of cooking oil and flour.

Over in Tunisia — the cradle of the Arab Spring protests — people have taken to the streets as the government has been forced to raise the prices of certain staples, including milk and eggs. Among the pressures on authorities there: the impact of the Ukraine War on global food prices, which have hit the country’s already shaky public finances, so much so that it is seeking a financial lifeline from the International Monetary Fund.

Sri Lanka, too, is seeking an IMF bailout; again, the spiraling cost of food has made the needs of the government ever more urgent. The country’s Prime Minister Ranil Wickremesinghe acknowledged in a recent interview that while many of the island nation’s problems were of “its own making,” the Ukraine conflict had made things harder. “The Ukraine crisis has impacted our … economic contraction,” he told the Associated Press. “I think by the end of the year, you could see the impact in other countries.”

Already, the impact has led to some broad political changes. Colombia, for example, elected its first leftist leader this year, against the backdrop of sky-high inflation: Analysts expect prices to vault 9 percent this year, three times the target set by the country’s central bank. Controlling rampant price rises is among the top items on President-elect Gustavo Petro’s to-do list.

Experts worldwide worry that situation could worsen in the coming months. “If people can’t feed their children and families, then the politics unsettles,” David Beasley, the head of the U.N.’s World Food Programme, told CNN earlier this year.

Fuel prices have also been affected by the Ukraine War and have been feeding into the cost of goods and services worldwide. Here, again, the reason is clear when you look at Moscow’s influence in the energy market: Russia is third only to Saudi Arabia and the U.S. when it comes to producing oil. And sanctions on the Kremlin have raised concerns about global supplies, driving up the cost of oil.

Another less obvious but no less consequential fallout: the impact of the conflict on the global fertilizer market. Russia is the world’s largest exporter of fertilizers, supplies of which have been affected in the aftermath of its invasion — again, pushing up food prices and already triggering unrest. Case in point: Peru. Last year, Russia accounted for 70 percent of the fertilizers used by Peru, according to figures compiled by Bloomberg. A drop-off in supplies in recent months has fanned inflation, which climbed to its highest levels in 24 years in April. It is also raising concerns beyond Peru: In 2020, Peru exported almost $3 billion worth of agricultural products to the U.S., for example. Those supplies are now in question.

And as the war continues, the situation is likely only to worsen. “Food, fuel and fertilizer prices are skyrocketing. Supply chains are being disrupted. And the costs and delays of transportation of imported goods — when available — are at record levels,” the U.N. Secretary-General António Guterres warned in March, shortly after Russia invaded Ukraine. “All of this is hitting the poorest the hardest and planting the seeds for political instability and unrest around the globe.”

The warnings have only become more urgent with the passage of time. “It’s going to take months and months, and maybe two years to bring inflation back down,” the head of the World Bank, David Malpass, told CBS in late June, adding: “A lot of the world is shutting down for lack of fertilizer. And then those shortages of crops will last for multiple years.”

The final straw

This instability comes as the world haltingly recovers from the ravages of the covid-19 pandemic. A key factor here is the reopening of the world: Historically, pandemics have, overall, led to a drop in unrest. That’s what happened with covid-19, according to data gathered by economists at the International Monetary Fund.

With the caveat that measuring social unrest globally is hard at the best of times, they keep an eye on what is happening around the world with a tracker that records media mentions of words associated with unrest across 130 countries. Called the Reported Social Unrest Index, it recently neared its highest levels since the onset of the covid pandemic.

“When a pandemic such as the latest one ends, we should expect unrest to rise again,” Philip Barrett, an economist at the IMF, told Grid. “Interestingly, epidemics seem to be different from other natural disasters like floods, storms, earthquakes etc., where unrest typically does not fall as in pandemics. We think that this hints at a mechanism — that being in large crowds is particularly unappealing when there is a dangerous communicable disease circulating.”

Barrett highlights four major drivers behind unrest. Leading the list, unsurprisingly: local, country-specific factors. Next, whether or not a nearby country has seen similar upheavals. Then, in the present context, the impact of the pandemic, followed by the impact of inflation.

“The impact of prices of food and fuel, which have spiked dramatically on account of the war in Ukraine,” Barrett told Grid, “this will undoubtedly put pressure on the budgets of families in countries where affected staples — wheat and corn perhaps most obviously — are a large part of expenditure.”

Rising food and fuel prices have, Sperrfechter of Capital Economics told Grid, acted like a “spark,” inflaming tensions that were already building up in the aftermath of the pandemic. “It is has acted like a spark that has set everything off,” she said, “It is one factor of many, but it is like the final straw.”

A telling sign came from the international insurer Allianz, which last month warned businesses to brace themselves for civil unrest as prices of basic goods spiral, saying: “Civil unrest increasingly represents a more critical exposure for many companies than terrorism.”

Projections from Verisk Maplecroft, an insurance risk-tracking firm, are also pessimistic: They cite, among other factors, food security as a driver of unrest, forecasting that 75 countries were likely to see an increase in protests by late 2022. “Although much of the deterioration will likely be concentrated in frontier and emerging markets, it is unlikely any region will be fully excluded from this trend,” their analysts warn.

The rising cost of living is already beginning to sour what economists call consumer sentiment — or how ordinary people are feeling. Internationally, the financial services firm Deloitte said its tracker of global worries about rising prices showed that, in May, 75 percent of people worldwide were concerned about how much dearer everyday purchases were becoming, compared with 66 percent back in September 2021.

Dig into the numbers, and it is clear that in some places, the concern is near universal. In Spain, where consumer inflation recently touched record highs, Deloitte said 88 percent of people were worried about rising prices.

And there doesn’t appear to be any end in sight, at least not in the near term — international prices rises are expected to average around 6.7 percent this year, which is more than double the average of 2.9 percent recorded between 2010 and 2020, according to the U.N.

Action for now is concentrated on limiting the pain. In Hungary, certain gas stations have imposed limits on the amount of fuel that can be purchased by motorists. Egypt has put in place a ceiling on the price of unsubsidized bread. Mexico has moved to cap food prices.

But when will things get better? “It hard to predict, but one concern is definitely that the war [in Ukraine] continues to go on, and commodity prices remain high,” Sperrfechter, from Capital Economics, told Grid. “That is probably one of the biggest concerns.”