The commodity crunch also puts a premium on well-targeted policies, the IMF said. Higher food and energy prices typically hit the poor hardest, because those items account for a bigger share of household budgets – but generalized subsidies and price caps can end up helping wealthier people who consume more.
Europe is racing to design energy relief programs as winter looms, and arguments are already breaking out about how to do it fairly. Germany, which announced an aid plan worth about $200 billion (206 billion euros), has been criticized by allies for using its financial muscle to go it alone, instead of pooling resources for a Europe-wide effort.
Some countries have imposed a windfall tax on the profits of energy companies to finance their emergency spending.
While those measures have typically been introduced as a one-off, the IMF said that a permanent charge on excess profits from fossil-fuel extraction may be preferable, because it “avoids distortions from a temporary tax.”
This article was provided by Bloomberg News.