Less Inflation, Less Poverty

This paper undermines the conventional view in the West that "stabilization policy aggravates poverty", demonstrating in fact that the effect is precisely the reverse. This investigation of the impact of the "inflation tax" on the monetary assets of Russian households reveals the general effect is clearly regressive, with the wealth of the lowest income groups most severely eroded by high inflation. On the basis of recent historical experience, a modest reduction in the monthly inflation rate from 6% to 5% can be expected to result in roughly 700,000 Russians being lifted above the official poverty line. These findings have important implications for the conduct of macro-stabilization policy in transnational economies around the world.
 
This paper undermines the conventional view in the West that "stabilization policy aggravates poverty", demonstrating in fact that the effect is precisely the reverse. This investigation of the impact of the "inflation tax" on the monetary assets of Russian households reveals the general effect is clearly regressive, with the wealth of the lowest income groups most severely eroded by high inflation. On the basis of recent historical experience, a modest reduction in the monthly inflation rate from 6% to 5% can be expected to result in roughly 700,000 Russians being lifted above the official poverty line. These findings have important implications for the conduct of macro-stabilization policy in transnational economies around the world.