The IMF’s report on the inflation crisis prescribes an assault on working-class living standards, which must be resisted, argues John Clarke

The IMF’s recent report on ‘World Economic Outlook: Countering the Cost-of-Living Crisis’ offers some revealing insights into the strategic thinking of the cold-blooded bean counters of global capitalism. As in the early 80s, their economic system is caught between the dangers of a severe global slump and a serious round of inflation. Though the IMF poses as a voice of moderation and a protector of the ‘most vulnerable’, this report is fully supportive of brutal class-war measures to contain the crisis and restore economic stability.

It would be very hard to disagree with the opening sentence of the report’s first chapter, which concludes that the ‘world is in a volatile period: economic, geopolitical, and ecological changes all impact the global outlook’ (p.1). This sober assessment is then followed by a series of observations with which very few on the left could differ.

The writers point out that the inflationary crisis has coincided with the termination of pandemic related ‘fiscal support’. They consider the significance of the Ukraine conflict and put this, very correctly, in the context of wider ‘geopolitical disruption’. They acknowledge that ‘lingering waves’ of the pandemic are compounding the economic disruption, and they even accept that the worsening impacts of climate change will intensify these difficulties considerably.

Twin dangers

When it comes to the threat of global recession, the report informs us that: ‘A slowdown in global growth is forecast, from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023.’ It then shows that: ‘For most economies, the outlook is significantly weaker than projected six months ago. Forecasts are weaker than expected for 143 economies (accounting for 92 percent of world GDP) for 2023’, and that this situation is ‘the weakest since the 2.5 percent growth rate seen during the global slowdown of 2001 – with the exception of those during the global financial and COVID-19 crises’ (p.8).

Alarmingly: ‘Growth in the United States is projected to decline from 5.7 percent in 2021 to 1.6 percent in 2022 and 1.0 percent in 2023, with no growth in 2022 on a fourth-quarter-over-fourth-quarter basis.’ When it comes to the UK, ‘a significant slowdown is projected. Growth is forecast at 3.6 percent in 2022 and 0.3 percent in 2023 as high inflation reduces purchasing power and tighter monetary policy takes a toll on consumer spending and business investment’ (p.12).

The report suggests that the ‘adverse shocks of 2022 are expected to have long-lasting effects on output’, and that about ‘half of the projected 2022 decline is due to lower growth in China, the Euro area, Russia, and the US, with this composition holding fairly steady over the forecast horizon’ (p.13). We are told that global ‘trade growth is slowing sharply: from 10.1 percent in 2021 to a projected 4.3 percent in 2022 and 2.5 percent in 2023’ (p.15). Moreover, overall, ‘risks are elevated as the world grapples with the impact of Russia’s invasion of Ukraine, a slowdown in economic activity as central banks ramp up efforts to quell inflation, and the lingering pandemic’ (p.16).

Though the IMF is concerned about the threat of a very serious global slump, it is clear that the risk of sustained inflationary dislocation is regarded as the greater danger by far. The report doesn’t echo the view of some of the more hawkish intellectual enablers of global capitalism that a major recession will be necessary in order to restore stability, but it is clear that the writers of the report are ready to err on the side of risking a huge downturn in their effort to contain inflation. They note with alarm that: ‘In 2022, inflation in advanced economies reached its highest rate since 1982’ (p.2).

The report goes into significant detail in mapping out the dimensions of the inflationary crisis. ‘In August of this year, prices in US were 8.3 percent higher than those one year earlier. The Euro area saw inflation reach 10 percent in September, while the UK saw annual inflation of 9.9 percent. Emerging market and developing economies are estimated to have seen inflation of 10.1 percent in the second quarter of 2022 and face a peak inflation rate of 11.0 percent in the third quarter’ (p.4).

Assault on workers

The writers are hopeful that inflation is peaking and informs us that: ‘The forecast for global headline consumer price index inflation is for a rise from 4.7 percent in 2021 to 8.8 percent in 2022 – an upward revision of 0.5 percentage point since July – and a decline to 6.5 percent in 2023 and 4.1 percent in 2024’ (p.14). However, they previously noted that: ‘High inflation in 2021 and 2022 has surprised many macroeconomic forecasters, including IMF staff.’ When it comes to these ‘inflation surprises’, they doggedly assert that ‘our understanding is still evolving’ (p.5). It is not at all impossible that the crisis within capitalism may outpace them in this regard.

The report notes that: ‘Major central banks must chart a difficult course’, and concludes that the ‘risk of policy mistakes – under- or overtightening – is elevated in these conditions.’ However, it also asserts that ‘over- and under-tightening do not necessarily have symmetric costs: a policy mistake that leads to spiralling inflation would be the much more detrimental of the two’ (p.17).

As the writers look for a way to limit recessionary impacts, while ensuring that price stability is restored, they sound a note of confidence with the breezy assertion that: ‘Although the economic environment is one of the most challenging in many years, difficult times need not last forever. Judicious policy choices can help guide the global economy out of inflation and into an era of sustainable and inclusive [!] growth’ (pp.20-1).

Clearly, however, a large dose of very unpleasant medicine is going to have to be administered, as far as the writers are concerned. ‘The priority must be to tackle inflation, normalize central bank balance sheets, and raise real policy rates above their neutral level fast enough and for long enough to keep inflation and inflation expectations under control.’ At this point, they also make a subtle reference to the austerity measures that are the infamous stock in trade of the IMF. ‘Fiscal policy also needs to support monetary policy in softening demand in economies with excess aggregate demand and overheating labor markets’ (p.21).

In the second chapter, the report drives home its message that class-war policies to weaken workers’ bargaining power and drive down wages are the order of the day. It proclaims that: ‘Consistent with earlier empirical and theoretical literature, the analysis suggests that rises in inflation expectations and productivity growth are associated with increases in nominal wage growth.’ Leaving no room for doubt, it refers approvingly to ‘slack in the labor market, which reduces wage pressures as workers struggle to find jobs and accept lower wages’ (p.57).

It is quite clear that the IMF fully understands that the cost-of-living crisis has not been set in motion by wage demands. It acknowledges that: ‘Although wage and price inflation picked up in a broad-based manner through 2021, real wages tended to be flat or falling across economies on average’ (p.66). It is hard to argue that workers are driving an inflationary process with which they are not keeping up, but the IMF, like the rest of the pack of which it is a part, is convinced that an all-out assault on working-class living standards is the best route to containing inflation and restoring economic health to their system.

The IMF’s professed hopes for a limited economic downturn are rooted in wishful thinking and dubious assumptions. Their claim that this can be done with minimal hardship, complete with compassionate measures to protect those most harshly impacted, is preposterous. As the threat of a major recession intensifies, they are clear that nothing can stand in the way of a brutal effort to drive down working-class living standards, regardless of the consequences.

As trade unions and hard-pressed communities escalate their fight back, in the face of the cost-of-living crisis, the ruthless plans and proposals of the IMF are a warning and another reason to redouble our efforts to defeat such attempts to make us pay for that crisis.