Worrying about rising prices and inflation is natural. The impact of the COVID-19 pandemic and the Russian invasion of Ukraine on markets has been extraordinarily taxing, but what about worry itself?
A globally shared event, the COVID pandemic made illness, survival, and livelihoods a significant focus of attention. Disrupting global trade, its impact on households and businesses continues through higher prices and less product availability. It has left no one without some sort of worry.
The Russian invasion of Ukraine has shocked food and fuel markets globally. Together — with other significant more local economic, political, social, and climate events, and navigating everyday life — it is hard to imagine anyone without more worry than usual for some time now.
Inflation is currently the number one global worry says Ipsos — a global market research firm. And it may be. But asking 1,000 people online in 27 countries about their specific individual concerns does not indicate what worries the world.
Major market changes like rising prices and inflation do affect how much we worry. Many will use this to get your attention, especially now because it is so easy to do.
The truth is that higher prices and inflation are either individually bad, good, or neutral, depending on how changes affect your circumstances. Inflation, which measures how fast prices for important goods and services are increasing, is at a historic high after a long period of low rates in many countries.
Money and prices are not absolute, they are relative. If your income rises more than prices, then inflation has not necessarily made you worse off. If you have investments and assets — like real estate — with rising value, then you could be doing better. If you take a fixed rate loan from a bank raising interest rates while borrowing costs are being raised to combat current inflation, then you will get hit hard if interest rates decline.
The details of your individual income, wealth, debt, and consumption of goods and services defines how higher prices and inflation affect you.
Economically, worry about higher prices and inflation is about concerns over your current and future standard of living and well-being. It is also about confidence in monetary policymakers and their abilities to steer and guide economies through turbulent times.
Monetary policymakers are often black suit wearing, quiet types. For example, when Ben Bernanke became the Chair of the US Federal Reserve, very little was known about him. At the time, the press interviewed someone who co-authored an economics textbook with Bernanke when he was a professor who had to admit he knew very little about him.
Paradoxically, consumer confidence in monetary policymakers is essential to avoid further economic setbacks. If, for example, consumers anticipate persistently high inflation, even if that expectation is divorced from reality, they would demand higher wages. Higher labour costs would drive up prices, potentially creating a self-perpetuating vicious cycle.
Of course, different countries and central banks are in different circumstances. Monetary policy is national, but the global supply of money is entangled. Not too many countries can economically implode without contagion, which creates some shared interests in having other economies weather the current climate.
Consumer confidence in national monetary policymakers differs around the world. Most notably, the not-too-distant examples of Greece and Spain highlight past faulty thinking in central banks and the IMF’s advice to them. Individual central banks might do better or worse at addressing higher prices and inflation because of more profound structural issues in their economies.
Indicators of consumer confidence measure things like people’s level of optimism about job prospects and personal finances, spending intentions, sentiment about the general and future economic situation, and consumer consumption and saving.
Unsurprisingly, consumer confidence is down around the world, but fortunately, there are some positive indications.
For example, last week the Federal Reserve Bank of New York’s Centre for Microeconomic Data released the June 2022 Survey of Consumer Expectations, which shows an increase in short-term inflation expectations but a decline in medium- and long-term expectations.
What is remarkable and informative about the US example is positive future consumer expectations during this period of sustained economic — and other — upheaval and significant worry among its population.
US COVID deaths per capita topped the world. Mass shootings are becoming a weekly occurrence. Floods, fires, and heatwaves are causing massive environmental, economic, and social costs. The recent Supreme Court decisions and other social events continue to increase discontent and conflict among its population.
With so much worry in people’s lives, how is there confidence in the future?
Worry is negative thoughts about future events. The thought-driven aspect of worry can allow for better problem solving and planning for the future. The emotional element affects our mental and physical functions that help with coping.
Biologically, worry undermines the body’s ability to react to stress. It affects the cardiovascular, nervous, endocrine, and immune systems. Elevated cortisol — the stress hormone — levels slow the immune system and makes the body weaker against illness and disease. Worry causes muscle tension, affects sleep quality and quantity, and promotes cardiovascular problems.
Worry also disrupts normal cognitive processing and emotional functioning in the brain. Areas in the brain associated with planning, communication, reasoning, and impulse control have increased activity.
Creativity — or how well a person can evaluate things and perspectives — can change. The emotion and fear-processing areas of the brain get overstimulated. Serotonin — the brain-signalling chemical that enhances mood, learning, memory, and sexual desire — levels can be affected.
Despite pressure on the normal functions of the brain and the body, facing multiple significant economic, political, social, and environmental challenges, worry gives important insights about current circumstances.
Worry is overthinking and represents an attempt and desire for control. It can be constructive by motivating action, future planning, and problem resolution. Research shows that people worry about matters that rarely occur, but that there is a belief that overthinking about a possible negative event prevents the event from happening.
So maybe some people have low consumer confidence now but optimism about the future because of a belief that current worry will prevent negative future events.
At excess, worry does more harm than good. Not letting worry itself become a problem is key, especially now during these extraordinary times.
Those focused on the survival of their households and businesses may not have that luxury. The brain does not work the same way when an individual is worried about survival. Processing takes place differently and in a less sophisticated part of the brain, meaning an individual may not be able to undertake higher level functioning — things like planning, communication, reasoning, evaluating, and impulse control.
In survival mode, individuals may not be able to connect with or have empathy for other people or make long-term decisions in one’s own best interests and the best interests of others.
The brain does not always work the same way for the same individual. In turn, these things can change the brain physically. This is biological, not personal choice, ability, or weakness. Sometimes a person’s brain simply does not work as well as other times.
This is usually more often faced by poorer people or individuals who have experienced very significant events that directs the brain to predominately focus on survival. But with the extraordinary events of recent times, it is likely becoming more prevalent in societies.
Take the baby formula shortage in the US, for example. Higher prices and product shortages meant empty store shelves after a national recall of potentially tainted product. Worrying about whether you can feed your infant child would naturally trigger worry about survival. Parents who had already used the product had additional worries.
COVID, the Russian invasion of Ukraine, and rising prices and inflation continue to have significant impact on markets and on worry. Some have had to make changes to their daily lives and livelihoods. Some are focusing on survival. During these extraordinary times worry can be constructive, or it can become a problem itself.
Stay tuned for future articles on what you can do…