Inflation Is Good For You, If You Are One Getting Rich: Here's Who Gains From Rising Prices To The Detriment Of The Poor

Inflation is a phenomenon that affects everyone, but not equally. In fact, there are those who benefit from this phenomenon, or even cause it.

Certainly, among those who benefit is the state receiving the revenue from taxes and duties increases. But then do governments redistribute this increased revenue? It depends on government to government.

Then there are those who sell raw materials, such as oil, gas, meat, corn, flour and other materials that are excavated. Do you think they are losing or gaining from us?

Everything arises due to this theory with a slightly different practice – a mechanism of the economic wheel jams.

The recovery in consumption after the pandemic turned out to be stronger than expected. At the same time, the savings accumulated by the people exceed expectations.

This combo has meant that factories and companies, including economic closures, wrong forecasts and climate conditioning (now war in Europe too), have not been able (at least it seems) to supply a sufficient number of goods on demand.

Here the greater demand than the supply of raw materials and essential products has created an increase in prices.

THE STATE EARNS FROM INFLATION

The state, thanks to the increase in inflation, earns more revenue. Every time we buy a product or service, we pay our taxes. The taxes will be higher.

There are highly accredited studies that show the percentages of higher revenue from taxes and duties that arrive in the coffers of the state.

It will happen in the United States in 2022: an increase in revenue of about 10% is expected.

In Europe, this is less clear, because it depends on the policies of individual governments. There are those who have made large investments in the social sector, such as Germany, and will not particularly benefit from inflation.

On the contrary, there will be countries that have cut social services and public spending, this higher income will only be good for the state coffers. For example, to repair the public debt that the States have.

THE COUNTRY THAT IS BENEFITING MOST

There is a state, in South America, that is experiencing economic growth in 2022 that is incredible. I’m talking about Brazil.

This is because Brazil is a large producer of raw materials. Its exports have grown tremendously in recent months and would continue to do so if there were no problems like the war between Ukraine and Russia.

This situation has meant that domestic prices in Brazil have increased, albeit not dramatically. In addition, Brazil is a large producer of oil and natural gas, these prices have risen a lot in recent months.

So, with a GDP that will increase by 4.6% in 2021 and the most important growth in 11 years, offsetting a contraction of 3.9% in 2020 due mainly to the epidemic.

Thus the South American country escaped the recession. For example, the agricultural sector gained 5.8% in a quarter, although it shrunk by 0.2% for the year after the country’s worst drought in nearly a century.

In addition to Latin America, Saudi Arabia and South Africa also performed convincingly: on the other hand, they are the markets with the greatest exposure to commodities.

OIL AND GAS PRODUCERS HAVE BECOME RICHER

It is no mystery that oil and natural gas producing countries got rich during the pandemic.

Crude oil prices have risen, reaching around $130 a barrel, thanks to international demand that has grown much more than expected.

But in this case, the price increase was not always justified.

Let me give you OPEC as an example. It is an international organization founded in 1960 which represents oil-producing countries.

Its purpose is to coordinate and unify the energy policies of its members, in order to obtain the maximum profit from the exports of this product.

About 15 countries are part of the organization: among them Saudi Arabia, Iraq, Kuwait, Libya, Nigeria, Qatar and Venezuela.

What has OPEC done? If think back to 2020 the price of oil in futures contracts had come to cost less than zero. The whole world had stopped and no one was consuming oil (petrol and diesel.)

For these countries it was a great waste of money. To recoup these losses they decided to make us pay for them. How?

They decided not to increase the production of oil by much when it was needed, in 2021, so the price of that raw material has increased enormously since there is a lot of demand and little supply.

It is no secret that oil and natural gas producing countries have gained a lot in the second phase of the global blockades, thanks to the increase in crude oil prices.

According to estimates by the International Energy Agency (IEA), Saudi Arabia will have a budget surplus of $266 billion in 2021, compared to $138 billion in 2020.

Venezuela also expects the situation to improve: In fact, in 2021, revenues should increase by 50% compared to 2020, reaching 37 billion dollars.

Furthermore, natural gas prices have increased significantly in recent months.

According to the international agency Bloomberg New Energy Finance, American natural gas prices doubled at the end of 2020, reaching $2.50 per 1000 BTUs (British Thermal Units).

As you can see where that extra money that comes out of our pockets ends up. This economic system of ours is like the flow of water or communicating vessels where water flows between the two.

MY CONCERNS: INCREASING GAP BETWEEN RICH AND POOR

Rising consumer prices are one thing it worries me a lot. Because?

Well, as we have seen (in these few examples) inflation does not affect everyone in the same way: those who have more money can cope with the increases, while those who earn less suffer more.

Hence, this increase in inflation further favors the gap between rich and poor, at a time that is already very difficult from a social and economic point of view.

That additional wealth accumulated by the states will not be redistributed to less well-off citizens. Indeed, as we have seen in the case of Saudi Arabia and Venezuela, the governments of those countries have no intention of increasing wages or creating new jobs.

It appears that this extra wealth is being used to finance military spending.

According to the Stockholm International Peace Research Institute (Sipri) think tank, in 2020, Saudi Arabia increased military spending by 13% to $69.4 billion.

Venezuela, on the other hand, increased military spending by 60% in 2020, reaching $2.3 billion.

So the picture is grim. The only hope I have is that at least more jobs will be created.

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