Inflation is bad, especially for those who have less. If the increase in the prices of goods and services is greater than that of household income, the latter will be unable to continue acquiring the same quantity, quality and variety of satisfiers as before, which reduces their well-being.
The impact is worse on those with lower incomes, since they could reach the point of not even being able to satisfy their most basic needs (food, health, education).
The rise in prices is a worldwide phenomenon. Last April, the consumer price index in our country registered a year-on-year variation of 7.7%, the highest in more than 20 years. Something similar to what they have faced, from developed countries, such as the United States (8.3%) and Germany (8.7%), to emerging countries, such as Brazil (12.1%) and India (6.3%).
However, why does the OECD suggest a policy of abstention and not one of intervention? First of all, let us remember that it was the intervention of the State in the economy that generated the imbalances between supply and demand, which ultimately resulted in a sustained and generalized rise in prices around the world.
On the one hand, governments ordered non-essential activities to stop, measures that, to some extent, are still in force in some regions (China) and continue to obstruct the production of goods and services. On the other hand, they implemented extraordinary fiscal support and an ultra-expansive monetary policy, more visible in developed countries, such as the United States, which caused an extraordinary recovery in spending.
Second, the “distorting measures” that the OECD refers to are subsidies, price controls and trade restrictions, and to understand why these policies can amplify the problem of inflation, it is necessary to take into account that the market economy is based on voluntary cooperation and the free mobility of prices and factors of production.
In this scheme, for example, the increase in oil prices, associated with the global economic recovery and the sanctions applied to Russia (a relevant participant in the market), will cause existing bidders, attracted by the expectation of higher profits, increase their production and/or new players join the market, such as producers in unconventional fields, whose high operating costs would be covered by current prices.
Naturally, the market will rebalance itself after a while, since we must not forget that adjustments in supply are slower in demand, since it takes time to obtain and organize all the factors of production efficiently.