Publication: The Distributional Impact of Inflation in South Asia: An Empirical Approach
Loading...
Published
2023-07-26
ISSN
Date
2023-07-26
Author(s)
Editor(s)
Abstract
This paper provides an empirical estimation of the distributional impact of inflation on households in South Asia. Two main channels are explored—the consumption basket channel and the income channel—for households in different income deciles in selected countries in South Asia. Using recent household expenditure surveys, the paper constructs detailed consumption expenditure shares and the effective “cost-of-living” inflation for households of different income levels. The analysis finds that due to a substantially larger share of food expenditure, households in lower income deciles experience higher effective inflation when food prices are high, despite a diversification in consumption expenditure over time. The analysis also suggests heterogeneous effects of inflation through the household income channel.
Link to Data Set
Citation
“Olakemi Dovonou, Vanessa; Xie, Zoe Leiyu. 2023. The Distributional Impact of Inflation in South Asia: An Empirical Approach. Policy Research Working Papers; 10527. © World Bank. http://hdl.handle.net/10986/40090 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Global Food Price Inflation : Implications for South Asia, Policy Reactions, and Future Challenges(Washington, DC: World Bank, 2008-12)The surge in global commodity prices of the past few years has presented a tremendous development challenge for South Asian countries. The large loss of income from the terms of trade shock has worsened macroeconomic balances, fueled rapid inflation, and hurt growth. Although commodity prices have come down recently, the benefits are being clouded by the emergence of a severe global financial crisis. The adverse consequences of the food price hike for the poor are large; the global financial crisis could further worsen the situation due to falling economic opportunities and government revenues. South Asian countries need to accelerate reforms to avoid facing a serious downturn in economic activity, investment, exports, and income. Governments in South Asia have responded by stabilizing domestic food prices through a number of short-term measures, tightened monetary policy to reduce inflation, and increased spending on a range of safety net programs for the poor. Some of the policies employed, such as export bans, are not consistent with the long-term welfare of the country or the region. Safety net interventions need to be made consistent with a longer-term poverty reduction strategy and fiscal sustainability. Most importantly, policy attention now needs to shift toward efforts to increase farm productivity, improve rural infrastructure, and lower the vulnerability of the poor.Publication Managing Food Price Inflation in South Asia(Dhaka: The University Press Limited, 2010-09)The surge in global commodity prices of the past few years has presented a tremendous development challenge to South Asian countries. On a net basis South Asia is estimated to have suffered an income loss equivalent to some 9.6 percent of Gross Domestic Product (GDP) between January 2003 and April 2008. Although much of the income loss resulted from the hike in petroleum prices, the surge in food prices between January 2007 and April 2008, especially of staple food ? wheat and rice ? has created tremendous adverse social impact in South Asia. All countries have witnessed unprecedented surge in food prices, although India was able to limit this increase owing to good harvests and timely interventions using stock management and public food distribution. Net food importing countries like Afghanistan, Sri Lanka and Bangladesh have suffered the most from the food price crisis. The emerging global financial crisis is adding fuel to the fire, with expected future adverse consequences for macroeconomic balances and growth.Publication Is Uruguay More Resilient This Time? Distributional Impacts of a Crisis Similar to the 2001/02 Argentine Crisis(World Bank, Washington, DC, 2014-04)The 2001/02 Argentine crisis had a profound impact on Uruguay's economy. Uruguay's gross domestic product shrank by 17.5 percent and the proportion of people living below the poverty line doubled in just two years. It took almost 10 years for the poverty rate to recover to its pre-crisis level. This paper uses a macro-micro simulation technique to simulate the impact of a similar crisis on the current Uruguayan economy. The simulation exercise suggests that Uruguay would now be in a better place to weather such a severe crisis. The impact on poverty would be considerably lower, inequality would not change significantly, and household incomes would be 8 percent lower than in the absence of a crisis (almost 9 percent lower for those households in the bottom 40 percent of the income distribution). Young individuals, female-headed households, those living in Montevideo, and those who do not have complete secondary education are more vulnerable to falling into poverty were the crisis to strike.Publication Assessing Poverty and Distributional Impacts of the Global Crisis in the Philippines : A Microsimulation Approach(2010-04-01)As the financial crisis has spread through the world, the lack of real-time data has made it difficult to track its impact in developing countries. This paper uses a micro-simulation approach to assess the poverty and distributional effects of the crisis in the Philippines. The authors find increases in both the level and the depth of aggregate poverty. Income shocks are relatively large in the middle part of the income distribution. They also find that characteristics of people who become poor because of the crisis are different from those of both chronically poor people and the general population. The findings can be useful for policy makers wishing to identify leading monitoring indicators to track the impact of macroeconomic shocks and to design policies that protect vulnerable groups.Publication Welfare and Distributional Impacts of Inflation and the COVID-19 Outbreak in the Islamic Republic of Iran(World Bank, Washington, DC, 2021-03)This paper simulates the welfare and poverty impacts of the COVID-19 pandemic in the Islamic Republic of Iran, emphasizing the role of inflation, which lowered the purchasing power of households and had heterogeneous impacts across the distribution and in different regions of the country. First, income losses are estimated with a microsimulation analysis based on shock scenarios. Second, combining data on price changes with expenditure baskets for various groups of households, group-specific price indices are calculated. These are then applied to the post-shock income changes to assess the deterioration of living standards associated with inflation. Poverty substantially increases, by up to 21 percentage points, as a combined result of the fall in household incomes and high inflation through the pandemic. Iranians in the bottom half of the welfare distribution, those working in services and high-contact economic sectors, and those in rural areas are disproportionately affected.
Users also downloaded
Showing related downloaded files
Publication Classroom Assessment to Support Foundational Literacy(Washington, DC: World Bank, 2025-03-21)This document focuses primarily on how classroom assessment activities can measure students’ literacy skills as they progress along a learning trajectory towards reading fluently and with comprehension by the end of primary school grades. The document addresses considerations regarding the design and implementation of early grade reading classroom assessment, provides examples of assessment activities from a variety of countries and contexts, and discusses the importance of incorporating classroom assessment practices into teacher training and professional development opportunities for teachers. The structure of the document is as follows. The first section presents definitions and addresses basic questions on classroom assessment. Section 2 covers the intersection between assessment and early grade reading by discussing how learning assessment can measure early grade reading skills following the reading learning trajectory. Section 3 compares some of the most common early grade literacy assessment tools with respect to the early grade reading skills and developmental phases. Section 4 of the document addresses teacher training considerations in developing, scoring, and using early grade reading assessment. Additional issues in assessing reading skills in the classroom and using assessment results to improve teaching and learning are reviewed in section 5. Throughout the document, country cases are presented to demonstrate how assessment activities can be implemented in the classroom in different contexts.Publication Europe and Central Asia Economic Update, Spring 2025: Accelerating Growth through Entrepreneurship, Technology Adoption, and Innovation(Washington, DC: World Bank, 2025-04-23)Business dynamism and economic growth in Europe and Central Asia have weakened since the late 2000s, with productivity growth driven largely by resource reallocation between firms and sectors rather than innovation. To move up the value chain, countries need to facilitate technology adoption, stronger domestic competition, and firm-level innovation to build a more dynamic private sector. Governments should move beyond broad support for small- and medium-sized enterprises and focus on enabling the most productive firms to expand and compete globally. Strengthening competition policies, reducing the presence of state-owned enterprises, and ensuring fair market access are crucial. Limited availability of long-term financing and risk capital hinders firm growth and innovation. Economic disruptions are a shock in the short term, but they provide an opportunity for implementing enterprise and structural reforms, all of which are essential for creating better-paying jobs and helping countries in the region to achieve high-income status.Publication Argentina Country Climate and Development Report(World Bank, Washington, DC, 2022-11)The Argentina Country Climate and Development Report (CCDR) explores opportunities and identifies trade-offs for aligning Argentina’s growth and poverty reduction policies with its commitments on, and its ability to withstand, climate change. It assesses how the country can: reduce its vulnerability to climate shocks through targeted public and private investments and adequation of social protection. The report also shows how Argentina can seize the benefits of a global decarbonization path to sustain a more robust economic growth through further development of Argentina’s potential for renewable energy, energy efficiency actions, the lithium value chain, as well as climate-smart agriculture (and land use) options. Given Argentina’s context, this CCDR focuses on win-win policies and investments, which have large co-benefits or can contribute to raising the country’s growth while helping to adapt the economy, also considering how human capital actions can accompany a just transition.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.Publication Morocco Economic Update, Winter 2025(Washington, DC: World Bank, 2025-04-03)Despite the drought causing a modest deceleration of overall GDP growth to 3.2 percent, the Moroccan economy has exhibited some encouraging trends in 2024. Non-agricultural growth has accelerated to an estimated 3.8 percent, driven by a revitalized industrial sector and a rebound in gross capital formation. Inflation has dropped below 1 percent, allowing Bank al-Maghrib to begin easing its monetary policy. While rural labor markets remain depressed, the economy has added close to 162,000 jobs in urban areas. Morocco’s external position remains strong overall, with a moderate current account deficit largely financed by growing foreign direct investment inflows, underpinned by solid investor confidence indicators. Despite significant spending pressures, the debt-to-GDP ratio is slowly declining.