The Unequal Burden of Inflation: Implications for Vulnerable Populations and Strategies for Resilience

Inflation and Local Economic Ecosystems

Inflation can significantly disrupt local economic ecosystems by distorting price signals, reducing purchasing power, and weakening consumer and producer confidence. At the microeconomic level, rising prices diminish the real income of households, leading to reduced spending on non-essential goods and services. This decline in demand directly affects small and medium-sized enterprises (SMEs), which form the backbone of most local economies, particularly in low- and middle-income countries. According to the World Bank (2023), SMEs account for over 90% of businesses and more than 50% of employment worldwide, making them highly vulnerable to inflation-driven shifts in consumption. On the supply side, producers and retailers face increased input costs such as fuel, transportation, and raw materials, which are often passed on to consumers, further fueling the inflationary cycle. In informal markets, where price-setting is less regulated, volatility is more pronounced, leading to unpredictable income flows and heightened precarity for workers. Moreover, inflation undermines investment by creating uncertainty about future costs and returns, discouraging long-term planning. In cases of sustained inflation, local governments may also experience reduced real revenues from taxes and transfers, limiting their capacity to provide public goods and services, thereby compounding the economic strain at the community level.

Disparate Impacts of Inflation on Vulnerable Populations

• Low-Income Households and Informal Sector Workers

Low-income households allocate a disproportionately high share of their income to essential goods such as food, fuel, and healthcare. Consequently, they are more sensitive to inflation in these categories. In countries with headline inflation of 5 percent, necessities can become unaffordable for those living near or below the poverty line. Informal workers, who often lack job security and access to social protection, face heightened exposure to price shocks without the institutional safeguards available to formal sector employees.

• Gendered Dimensions of Inflation

Women, particularly those who head households or work in the informal sector, experience inflation in distinct ways. Care responsibilities, compounded by limited asset ownership and income-generating opportunities, increase their economic vulnerability. Rising prices in sectors such as education, food, and energy disproportionately affect women, exacerbating gender inequality and deepening existing socioeconomic divides.

• Migrants, Refugees, and Fragile-State Populations

Populations in fragile and conflict-affected regions are uniquely exposed to inflationary pressures. Humanitarian aid budgets, often denominated in foreign currencies or fixed-year projections, lose purchasing power when local inflation accelerates. Public services, including healthcare and education, often degrade in quality or availability under inflation-induced fiscal strain, thereby further marginalizing these groups.

• Fixed-Income Populations

Elderly individuals and those dependent on pensions or fixed public transfers face declining real incomes in inflationary environments. Without inflation-indexed benefits, their purchasing power erodes, increasing their reliance on family or public assistance.