Why could families before live on one income but can now barely scrape by on two? Monetary economist Edin Mujagić poses this question at the start of his book Money Murder. He claims that central banks across the world have destroyed wealth by systematically pursuing inflationary policies.

While ‘destroying wealth’ might seem a strong term, economists have raised questions regarding inequality. The ‘99% vs. 1%’ dichotomy is a growing reality. The scenario is simple yet worrisome: 1% of the people own 99% of the global wealth. Veteran US economists Chuck Collins and Joseph Stiglitz have looked at the costs of this scenario to the political economy in their respective books, How Wealth Inequality Is Wrecking the World and What We Can Do About It, and The Price of Inequality.

There is a clear link between economic policy, particularly monetary policy, and the fundamental rights of human beings. This linkage begs the question: should policy-making be geared towards economic growth or towards human rights? In this regard, the inequality described above has various potential causes. This article explores one of these: inflation.

Debate between fundamental rights scholars and economists

Human rights scholars acknowledge that, to achieve the classic fundamental rights, such as freedom of speech or association, it is necessary to meet basic economic conditions. For instance, freedom of association is difficult without the means to hire a venue for meetings. Similarly, freedom of speech is easier to pursue in the presence of the funds needed to publish a book.

To guarantee these fundamental rights, then, economic rights are a precursor. Economic rights include the right to work, the right to social welfare and the right to health care. The problem with socioeconomic rights, though, is that they are often difficult to enforce as they entail a positive obligation on the part of the government. Meaning that, in order to achieve socioeconomic rights, the government has to act. Socioeconomic rights are therefore largely aspirational policy goals.

Economists, on the other hand, see growth as the ultimate goal of economic policy-making. However, economic growth is not a guarantee of welfare.

In New Zealand, Prime Minister Jacinda Ardern has adopted a policy to repurpose the government’s budget to ensure the welfare of the people. This initiative has generated a great deal of enthusiasm among progressive policy-makers.

New Zealand’s welfare-oriented policy-making will put other countries in a quandary: should they design policies to achieve target-oriented economic indicators or the fulfilment of fundamental rights? And can fundamental rights be used as a framework to test the legality of economic policy?

The economic rights vs. economic growth debate is yet to be settled.

The economic rights vs. economic growth debate is yet to be settled. To add to the discourse, there are a few tough questions to answer regarding one specific economic policy-making tool – that is, inflation. What is the relationship between fundamental rights and monetary policy? What are the effects of inflation on human rights? To answer these questions, it is essential to explore two specific human rights: the right to property and the right to non-discrimination.

First, what is inflation?

Inflation is the name of the phenomenon whereby the cost of goods rises. There are various reasons for this. For example, either an increase in production costs or an increase in money supply can cause inflation in an economy. Inflation reduces the spending power of money held.

Inflation can be nature-induced – for example it can be caused by lack of rain that results in crop failure. Inflation can also be pursued through government policy. Policies such as increased government spending, a decrease in interest rates or the printing of extra money may cause inflation. Through such policies, the government actively decreases the value of money.

Inflation does not take away the amount of money that someone owns. However, it decreases its value. This could prima facie be seen as a violation of the right to own property. To establish whether this assessment is correct, it is necessary to consider first the nature of money as property.


Understanding money as property

In considering whether inflation can be linked to the right to hold property, it is necessary to see money as property. Money should be defined as a claim. Cash is unique among all payment options, as it represents a direct legal claim on the central bank. Everyone can accept cash safely assuming that the received notes and coins will have value in future transactions. Cash is thus a claim on the central bank.

By contrast, deposits – i.e. bank accounts – are legal claims on a commercial bank. Bank transfers, check settlements or debit card charges merely change one or two commercial banks’ promises as to who can withdraw how much cash. Every commercial bank backs such promises with reserves at the central bank. A bank account is thus a claim on a commercial bank.

According to the European Court of Justice, claims should be considered assets if they have a legal basis and a legitimate expectation.

According to the European Court of Justice (ECJ), claims should be considered assets if they have a legal basis and a legitimate expectation. Hence, the value of someone’s monetary claims should remain equal. Inflation therefore may already be a breach of the right to own property. There are, however, limitations to the right to own property.

A public interest case study for perspective

Public interests may also inflict inflation. For example, in 1997 the ECJ decided that a retroactive change in tax policy in the UK did not violate property rights. Building societies in the UK took the case to the Court in response to a retroactive increase in taxes.

The Court basically found that this did not represent a violation of property rights because the UK Parliament had reviewed the law at hand. The UK Parliament had weighed the benefits and considered the policy to be in the public interest. The public interest thus outweighed the negative effects the building societies had experienced.

This case provides a good demonstration of the effects of inflation policies. Even though inflation is not a tax policy, from a legal perspective it can be considered close to one.

Inflation as an economic policy tool

Inflation is among the state’s tools to control the value of its coin. Inflation is furthermore linked to economic growth, which is generally considered in the public interest. Economists generally agree that high inflation is bad for economic growth. In one long-term study titled How Wealth Inequality is Wrecking the World and What We Can Do About It, published in 2013, macro economist Robert Barro shows that a 10% inflation level reduces growth by 0.2–0.3% and lowers real gross domestic product by 4–7%.

The exact effect of inflation on the economy is often a matter for debate. Nonetheless, low levels of inflation generally have a positive impact on economic growth. However, in a long-term study on Bangladesh economy, in Inflation and Economic Growth in Bangladesh: 1985–2005, economists Shamim Ahmed and Gholam Mortaza found instead a negative relationship between inflation and growth.

Inflation discriminates

It is important to consider one fundamental feature of inflation: the inequality of its effects.

In theory, inflation should affect all households equally. In other words, inflation’s effect is equal in ratio to households’ monetary assets. However, in reality, inflation actually discriminates. Development economist Mustafa Mujeri, in Inflation and the Poor in Bangladesh, finds that inflation has a larger impact on the poor than it has on the rich.

In Ethiopia, Elisa Ticci found that inflation disproportionately worsened the situation for the poor (in Can Inflation Be a Good Thing for the poor? Evidence from Ethiopia). Sugema and colleagues, in The Impact of Inflation on Rural Poverty in Indonesia: An Econometrics Approach, found similar results. For the US, however, Hollister and Palmer, in The Impact of Inflation on the Poor, found the opposite results. This may indicate that the impact depends on the relevant national economic structure.

If inflation has a larger impact on the poor then the question is whether this is solely an economic policy issue. It should not be, because the issue at hand has the ability to discriminate against the poor. The right to non-discrimination is a fundamental right codified in various international treaties and most national constitutions, including that of Bangladesh. Bangladeshi constitutional provisions in fact go further, to inculcate economic rights provisions, such as the right to shelter, basic welfare and electricity.

To understand the notion of inflation and non-discrimination, let us consider a regressive tax regime. In a regressive tax regime, taxation is not aligned with income. Inflation is not a tax in the traditional sense but is often considered a tax on savings. In effect, savings is the period between receiving money and spending it. The level of inflation is in ratio the same for a poor household as for a wealthy household. Yet, as discussed above, it has a greater impact on poor households.

In his work, Tax Regressivity as Indirect Discrimination, Thiago Feital found a regressive tax structure adopted in Brazil to be discriminatory. The structure essentially breaches human rights. Feital found that the taxes disproportionately affected vulnerable groups (such as black women) and did not improve their conditions post facto taxation.

Rights-based economic policy-making

If a fiscal policy such as regressive taxation violates human rights, the same can be argued about inflation. It is thereby imperative that Bangladesh – indeed all countries – revisit such policies, in light of their treaty obligations. The United Nations Charter states the objective ‘to achieve international cooperation in solving international problems of an economic, social, cultural, or humanitarian character, and in promoting and encouraging respect for human rights and for fundamental freedoms for all without distinction as to race, sex, language, or religion.

If a fiscal policy such as regressive taxation violates human rights, the same can be argued about inflation.

For Bangladesh, both fiscal (such as taxing) and monetary (such as inflation) policies aim to promote growth and development. While inflation may have a larger negative effect on the poor, this can be offset with smart social welfare policies. This would compensate for the discriminatory effect.

Takeaways for Bangladesh

In Bangladesh, it is primarily the Consumer Price Index (CPI), produced by the country’s centralised bureau for data, the Bangladesh Bureau of Statistics, that measures inflation. The CPI measures the average change in prices over time that someone pays for a basket of goods and services.

To compute this, an urban and a rural basket of 422 and 318 commodities, respectively, is used. The index basket is divided into eight major groups of items. Bangladesh’s central bank, Bangladesh Bank, uses the CPI inflation data to craft its policies and also to influence economic policy-making at large.

Inadequacy of the CPI data, a widely tracked economic indicator, is a problem. The CPI is published monthly but is highly aggregated (at a 2-digit level), whereas, according to best practice, data is supposed to be available at an 8-digit level. Food inflation data is provided but not the specific food item prices. In other words, it is not possible to determine whether high food prices owe to expensive meat or rising dairy prices, for example.

Data from Bangladesh’s 2016 household survey shows that, for an average Bangladeshi, nearly 50% of their expenditure is on food. For the poor, who barely have any savings, the share may end up at 70%.

Inflation fluctuates on a monthly basis, and the CPI data is also produced on a monthly basis. Meanwhile, income data, meaning per capita income, is aggregated annually. To understand the effects of inflation on income, CPI is averaged annually, so that both the data have the same timeframe.

While making decisions, policy-makers often take annual averaged CPI with annual income level. This poses a fundamental problem in economic policy-making in Bangladesh. The income-loss curve, induced by inflation, of a poor person fluctuates on a monthly basis, but economic policy decisions, which impact him/her, are based on annual data. This is a fundamental mismatch.

If economic policies impacting the poor, such as social security benefits, are aligned with the inflation curve, then the effects of inflation can be better offset. In other words, designing economic policies aligned with monthly, rather than annual, inflation rates may better protect the poor from inflation.

Bangladeshi policy-makers can reflect on a few course corrections to resolve the inflation issue, especially from a human rights lens:

  • Publish disaggregated CPI data.
  • Consider adopting the Price Index for the Poor (PIP) measure as a tool for economic policy-making. The PIP is devised to be more sensitive to poverty shocks to vulnerable groups, and can thereby be compared with the CPI as needed.
  • Adjust social security transfers to monthly inflation fluctuations.
  • Design public awareness campaigns on the discriminatory effects of inflation as part of Right to Information provisions.
  • Encourage further research on the effects of inflation on the poor and how it creates wealth disparities.
  • Since Bangladesh’s constitution guarantees economic rights such as basic welfare, food, shelter and electricity, look into the infringement of the rights of poorer populations when implementing policies that lead to inflation.

Since Bangladesh’s constitution guarantees certain economic rights, stakeholders can look into the infringement of the rights of poorer populations when implementing policies that lead to inflation.

End remarks

Economic policies such as inflation can breach fundamental rights. Inflation is largely discriminatory against the poor, especially in developing countries, including in Bangladesh. The impact of inflation on the poor depends on a country’s socio-economic structures; in Bangladesh, it disproportionately hurts the poor. Resolving this situation will be highly challenging.

Bangladesh has signed and ratified almost all international human rights treaties. In addition to its treaty obligations, Bangladesh also guarantees all fundamental rights and many economic rights needed for a progressive society. Yet, in an often unnoticed manner, mainly because of the conventional and normalised nature of the use of inflation in policy-making, inflation infringes a fundamental right: the right to non-discrimination. Moreover, inflation’s impact discrepancies disrupt the achievement of socioeconomic rights.

In pursuing inflation as a goal, policy-makers cannot be blind to the effects it may have on society. A top aim of economic policies should be to achieve fundamental rights. Since in Bangladesh inflationary policies disproportionately hit the poor, policy-makers should offset these – or risk causing potentially disruptive wealth disparities.


Photo ©️ Mahmud Hossain Opu

Anne Marieke Mooij is Assistant Professor of Law at Tilburg University, Netherlands. She is a legal researcher. She has worked at AKD Rotterdam and De Brauw Blackstone Westbroek law firms in Amsterdam. She specialises in monetary policy and its constitutional arrangements. She co-founded the Dublin Law and Politics Review. She is a Paddy Moriarty Scholar and was recognised as a young leader at the Institute for Democracy and Education Indonesia. She pursued her doctoral studies at Dublin City University, Ireland.
Shahrima Tanjin Arni is a senior analyst at the Centre for Research and Information. She is a lawyer and a political activist. She was a research associate at A.S. & Associate law firm and Editor of Dhaka University Law and Politics Review. She was the International Affairs Secretary of Dhaka University Central Students’ Union. She pursued her graduate studies in law at University of Dhaka.