Around the world, people are feeling the push and pull of inflation
MARY LOUISE KELLY, HOST:
Inflation is high around the world. In Egypt, soaring wheat prices are reminding people of the '70s wheat shortages, which sparked riots.
JUANA SUMMERS, HOST:
In Zimbabwe, the local currency has lost so much value, the government created a literal gold coin in the hopes of bringing some stability.
KELLY: In Canada, Prime Minister Justin Trudeau announced a multibillion-dollar inflation relief package to support low-income Canadians.
SUMMERS: Each country has its own story, but to better understand inflation, it can help to know a couple economic terms. Here are our colleagues Darian Woods and Wailin Wong from NPR's daily economics podcast, The Indicator.
DARIAN WOODS, BYLINE: The first phrase you have to know in inflation 101 is demand pull inflation. It's been happening here in the U.S. We've been buying up lots of stuff that pulls up demand, and it pulls up prices, too. And an extreme version of this is happening right now in Argentina.
WAILIN WONG, BYLINE: And in Argentina, its inflation predates the pandemic and is driven by government spending. It's basically printing money to pay for spending and debt servicing. Inflation is running at 70%.
WOODS: And yet, if you were to walk through the streets of Buenos Aires, you would see the bars and restaurants packed. There'd be people eating asado, grilled beef. And they'd be drinking Argentinean wine like Malbec, like in this recent video of a walk through in the city posted to YouTube.
WONG: Bernardo Diaz de Astarloa is an economist in Argentina. He says Argentines spend for today because of inflation. The interest rates you get at the bank are well below inflation. So by saving, you're losing money each year. So you may as well spend it fast.
BERNARDO DIAZ DE ASTARLOA: Of course, it's very aligned with theory because that's exactly what you would expect that will happen will - people just consume now instead of tomorrow.
WOODS: Ironically, this spending drives up inflation even further, and Bernardo says it causes other problems.
DIAZ DE ASTARLOA: It's something very bad for investment because the financial sector is kind of not well funded. And that's something very structural of Argentina, you know, this inability to develop a long-term financial sector or a mortgage market, for instance.
WOODS: The spiking cost of living has helped to tip about an extra 1 in 10 Argentines into poverty over the last several years. For those lucky enough not to be living on the edge, they've basically got two options. Either hold black market U.S. dollars underneath their mattress...
WONG: Or spend it fast - asado and champagne.
WOODS: I mean, Argentina - living in the moment.
DIAZ DE ASTARLOA: It's living in the moment. Yeah, that's right. Yeah.
WONG: So that's Argentina. Now to Germany, where prices have been rising at the highest rate in half a century, around 8%. One big contributor? Gas prices, which for households have roughly tripled. Ben Moll is a professor of economics at the London School of Economics.
BEN MOLL: Germany, before the war in Ukraine, imported 55% of all its gas use. So more than half from Russia. It's just a huge number.
WOODS: When Russia invaded Ukraine earlier this year, one of the biggest questions was whether Germany could stomach shutting off its Russian gas supplies. One of the big fears here was cost push inflation, second inflation 101 one term. We've seen that in the U.S., too. This is the kind of inflation that we've associated with supply chain disruptions during the pandemic and the war in Ukraine.
WONG: German Chancellor Olaf Scholz spoke to the German Bundestag in March with a grim prognosis if Russian gas were to be shut off.
(SOUNDBITE OF ARCHIVED RECORDING)
CHANCELLOR OLAF SCHOLZ: (Speaking German).
WONG: Olaf Scholz said hundreds of thousands of jobs would be lost. And entire industries would be pushed to the brink. So Ben wanted to test this.
WOODS: Ben and his team's results definitely showed a dent to the economy, but like a 0.5% or a 3% drop in GDP. So, painful for sure, but not wildly different than, say, the economic cost of the recent COVID recession.
MOLL: It doesn't necessarily imply economic armageddon. And the reason for this is that producers can substitute for gas and other inputs along this production chain along the way.
WONG: This is called the substitution effect. When the price of something rises, businesses and people will substitute to less-expensive alternatives. All of these tiny decisions across the economy can add up to minimize overall damage from a price spike in gas. And it means that inflation doesn't rise as much as it would otherwise.
WOODS: And even before Russia turned off its major gas pipeline to Germany two weeks ago, businesses had started substituting. Like a screw manufacturer is turning its gas furnaces to electric. Also, Berlin is switching from gas lights to LEDs. And demand for residential electric heat pumps is soaring ahead of the winter.
WONG: And in the U.S., you can see the substitution effect, too. Faced with global chip shortages, car manufacturers have changed their designs to be less reliant on certain processors. And because of rising meat prices, people have altered their eating habits. As the Fed lists interest rates, consumer spending growth is also slowing down. And the hope is, with these actions, both demand pull and cost push pressures will ease. Wailin Wong.
WOODS: Darian Woods, NPR News. Transcript provided by NPR, Copyright NPR.