High inflation major threat to national security

On May 22, 2024, 12:05 PM

Inflation, ― a persistent increase in the general price level of goods and services, poses a significant threat to national security and economic stability.

Ghana, like many other countries, is currently facing rising inflation, which requires urgent attention.

Security implications

Inflation can undermine national security in several ways and below are some implications:

• Economic instability: High inflation erodes the purchasing power of citizens, reduces economic growth, and can lead to social unrest.

Economic instability refers to when various factors of the economy are out of balance. Inflation occurs when the value of money decreases which results in increased price of goods and services (commodities)

Domestic security challenges: Inflation exacerbates poverty and inequality, which can lead to increased crime and social unrest.

Notably, national security risks, action by violent non-state actors, and narcotic cartels, organised crime, by multinational corporations and also the effects of natural disasters. The family, home or home countries will be affected mostly, and domestically there are some important points that outline the distinction between overall inflation and core inflation, which is the key metric of the Consumer Price Index.

The first includes food and energy prices — which are more sensitive to seasonal factors and fluctuate more rapidly (CPI). The latter excludes food and energy prices because of their volatility. Core inflation sticks longer since gasoline prices fluctuate more than the prices of the cars fuelled by said gasoline.

Tool

The most immediate inflation-fighting tool in the hands of policymakers is for the central bank to raise interest rates. Doing so dampens lending, and thereby the overall economic activity that drives price increases.

But sometimes the cure can be worse than the disease — raising interest rates at the wrong time or to the wrong level can trigger a recession, so central bankers tend to tread cautiously.

However, this caution may have hamstrung the kind of bold action that was necessary to successfully confront and contain the unprecedented, dramatic surge in inflation across the globe in the aftermath.

Thoughtful solutions

To address the rising inflation in Ghana, the government and central bank can implement the following measures:

Monetary policy:

• The Bank of Ghana can increase interest rates to reduce borrowing and spending, thereby curbing inflation.
• However, this may slow down economic growth and increase the cost of borrowing for businesses and individuals.

Fiscal policy:

• The government can reduce spending or increase taxes to decrease the amount of money in circulation and reduce demand-driven inflation.
• However, this may also impact essential public services and economic growth.

Supply-side policies:

• Increasing agricultural productivity and reducing supply chain disruptions can help mitigate inflation by increasing the supply of goods and services.
• The government can invest in infrastructure, education and technology to improve productivity.

Social programmes:

• Targeted social programmes, such as subsidies for essential goods and services, can help protect vulnerable populations from the effects of inflation.
• This can help maintain social stability and reduce the risk of unrest.