Inflation and the loss of financial capacity: A silent crisis undermining global society
- Ira Grange
- Mar 20
- 4 min read
Inflation has ceased to be an abstract economic phenomenon and has become a daily nightmare for millions of people worldwide. In recent decades, this phenomenon has evolved from an occasional concern to a global crisis that undermines families' financial capacity, pushes the middle class into poverty, and exacerbates existing inequalities in the most vulnerable societies.
In 2023, the global inflation rate averaged 8.8%, a concerning level that reflects unsustainable pressure on consumers. According to the World Bank, this rate is the highest since the 2008 global financial crisis, and projections do not suggest significant improvement in the short term. Inflation affects both developed and developing countries, although the consequences vary depending on each region's economic structures and fiscal policies.
The most evident impact of inflation is the loss of purchasing power. According to the International Monetary Fund (IMF), the increase in the prices of basic goods such as food, energy, and housing has outpaced wage growth in many countries. This means that families, especially those with low and middle incomes, are forced to drastically reduce their consumption, creating a spiral of poverty that seems unstoppable. In some countries, the prices of basic foodstuffs like bread, milk, and meat have risen by more than 30% in just two years, leaving millions on the brink of food insecurity.
A 2023 report by the United Nations (UN) revealed that nearly 10% of the global population now lives on an income below the international poverty line, estimated at $1.90 per day. This is largely due to the loss of purchasing power caused by inflation, which disproportionately affects the most vulnerable sectors of society. Inflation not only hits families in terms of consumption but also punishes savings, as the real value of bank deposits declines if interest rates do not surpass the growth of prices.
In this context, the situation is further worsened by the growing public debt of countries. Governments, in their attempts to curb inflation, have raised interest rates, which in turn increases the cost of loans and mortgages. However, this strategy, which aims to reduce spending and control prices, has devastating side effects. Public debt in countries such as Argentina, Turkey, and Greece has reached unsustainable levels, with debt servicing absorbing a significant portion of national budgets, limiting governments' ability to invest in social policies that alleviate their citizens' economic burdens.
But it is not only governments trapped in a cycle of debt. Families are also forced to go into debt to cover their basic needs. A study by Harvard University revealed that more than 40% of American families have debts that exceed their savings, an alarming statistic that reflects the growing dependence on credit during times of crisis. This situation is replicated in many other parts of the world, creating a breeding ground for future financial crises at the global level.
However, inflation is not only an economic issue but also a social one. The rise in inequality is one of its most pernicious effects. While the wealthiest sectors of society can afford to cope with rising prices through investments in assets, the poor and middle class are forced to make difficult decisions, such as cutting back on spending for healthcare, education, and housing. This increases the gap between the rich and the poor, weakening the social fabric and fostering political and social polarization.
A change in living conditions: A step back in time
If we look back at the 1960s and 1970s, we see a radically different society. At that time, an average family in many European and American countries could live on a single salary. The model was clear: the man (usually the main provider) worked in a stable, well-paid job, while the woman managed the household or worked part-time. This structure allowed families to live relatively comfortably, with access to a home, a car, and the possibility of enjoying annual vacations. Many could even afford a second residence, a summer home in the suburbs or by the beach.
In those years, the cost of housing was reasonable in relation to income, and although inflation existed, it did not reach the extreme levels we are facing today. According to data from the UK's National Statistics Office, in 1970, the average price of a house was approximately twice the annual salary of a person, whereas today, the average price of a home in countries like the United States or Spain exceeds seven times the annual salary of an average family. This highlights how inflation has eroded purchasing power and made homeownership increasingly unattainable, particularly for younger generations.
Today, the situation has drastically changed. Inflation has made it necessary for families to rely on multiple incomes to cover their basic needs. In many cases, both men and women must work full-time to make ends meet, and working conditions have shifted to the point where, even in more affluent households, the luxury of free time or living in a spacious home has become a distant dream. Wage labor has been replaced by precarious and low-paid jobs, and families that once enjoyed economic stability are now forced to rely on credit and debt to survive.
Moreover, single people, a growing segment of the population, are forced to live in shared apartments, sacrificing the privacy that was once a basic norm of adulthood. The possibility of owning a home, especially in large cities, is a luxury that is beyond reach for many, and the idea of having a personal home has drifted far away for both the young and the older generations. What once symbolized economic and personal stability is now an unattainable burden.
Inflation is silently dismantling the financial capacity of modern societies, undermining not only the well-being of families but also the political and economic stability of nations. Instead of a solid recovery after the pandemic, the world is facing a scenario of growing impoverishment for the middle class, where inflation has become a sword of Damocles hanging over the heads of millions of citizens.
The question we must ask ourselves is: how much longer will we tolerate this loss of economic capacity without radical changes in public policies to address the structural causes of inflation and inequality?