Beginner's guide to economic terms trending in the news

Shashi Tharoor's World of Words is a weekly column in which the politician, diplomat, writer and wordsmith par excellence dissects words and language



By Shashi Tharoor

Published: Thu 22 Sep 2022, 8:22 PM

Every newspaper reader has had the mortification of reading articles that use terms which the journalist seems to assume everyone knows the meaning of — but she, the reader, doesn’t. This is particularly true of economic terms: many of us haven’t studied basic economics in school or college, though reading a newspaper these days often seems to require it. If you feel that keeping up with the news these days makes you feel deficient in some way because you can’t tell your supply curve from your demand graph, here’s a short primer on some of the most commonly-used terms that have popped up in our newspapers in recent weeks when they covered economic news.

Inflation is all about rising prices. It is calculated by measuring how the prices of goods and services have risen, as calculated over a specific period of time, usually a calendar year. Thus, if an item cost a hundred dirhams in September 2021 and costs 110 dirhams in September 2022, the inflation rate for that item is 10 per cent. Of course, to understand the overall impact of inflation on an economy, you have to take into account the changing prices of a number of different items. That’s why a useful benchmark is the Consumer Price Index, which measures the percentage change in the price of a basket of goods and services typically consumed by households in a country. Most prices tend to go up with time, increasing salaries and costs, so moderate inflation is considered normal. After all, all of us remember when things like cinema tickets or even a cup of tea cost much less than they do today. But high inflation occurs when prices increase significantly or sharply — and that’s when they make the news.

Inflation is always comparative with the past, and is usually expressed as an annual figure, though in really unfortunate economies, prices can shoot up so fast that monthly inflation rates are talked about. Countries like Argentina and Zimbabwe have, in the recent past, experienced such high inflation that supermarket staff would change price stickers on items not just daily, but between the time you entered the shop and before you left it.

So, inflation is clear enough to most readers. But what, then, is “stagflation”? It’s a compound of “stagnation” and “inflation”, and as the name suggests, it means high inflation and economic stagnation at the same time, usually accompanied by high unemployment. Stop me if this gets too technical, but stagflation occurs if economic activity slows down while prices are still rising — in other words, if there is a recession before the rate of inflation has subsided. (Before you ask: a recession is defined by two successive quarters of reduced or negative gross domestic product (GDP) growth.) Economists tell you that the cure for stagflation is to raise interest rates to curb inflation, but there’s a downside to that too: when interest rates are high, people are happy to put their money in the bank rather than invest it or spend it on the market, and businesses find that borrowing money to invest is more expensive, meaning economic activity could slow down even further. Managing all this is the task of astute central banks and adroit finance ministers, and when we have neither, we all suffer.

OK, you say, but then what’s shrinkflation? That’s the term applied to a clever strategy to disguise inflation by not changing the sticker-price of an item but reducing its quantity: your cup of tea still costs the same, but the restaurant serves it in a smaller cup. Swiss chocolate addicts will recall when Toblerone in 2016 cost the same as in 2015 but seemed to suddenly have fewer triangles with bigger gaps between them. The price of the chocolate bar was unchanged, but its weight had shrunk from a net weight of 170 grams to 150 grams. The logic behind “shrinkflation” is evident: consumers are price-sensitive, so it’s easier to retain their loyalty if you don’t change the price, even if you reduce the quantity of your product they are getting.

There’s much more, of course, but this should help most readers keep up with the basics. The rest should just skip to the finance pages!

wknd@khaleejtimes.com


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