Skewflation refers to a unique economic phenomenon where the prices of a single commodity or a specific set of commodities experience a rise, while the overall price level across the economy largely remains stable. It represents a targeted form of inflation rather than a broad, widespread increase in prices.
Understanding Skewflation
Skewflation is a relatively new term in the field of economics. It emerged and gained recognition in the aftermath of the global financial crisis that occurred between 2009 and 2011. Unlike traditional inflation, which signifies a general increase in prices and a fall in the purchasing value of money, skewflation highlights an imbalance in price movements across different sectors of the economy.
Key Characteristics of Skewflation:
- Selective Price Increases: The most defining feature is that only certain goods or categories of goods see their prices go up. This could be anything from specific food items, energy resources, or raw materials.
- Overall Price Stability: Despite the rise in particular commodity prices, the general inflation rate, or the average increase in prices across all goods and services, stays relatively low or stable. This means that the prices of many other goods and services do not necessarily follow the upward trend.
- Sector-Specific Impact: Its effects are often felt more acutely by specific industries or consumer groups who heavily rely on the affected commodities. For instance, a rise in fuel prices due to skewflation might disproportionately impact transportation costs or industries dependent on energy.
Skewflation vs. General Inflation
To better understand skewflation, it's helpful to compare it with general inflation. While both involve price increases, their scope and impact differ significantly.
| Feature | Skewflation | General Inflation |
|---|---|---|
| Scope of Price Increase | Limited to a specific commodity or a small group of commodities | Broad and widespread increase across most goods and services in an economy |
| Overall Price Level | Tends to remain stable or experiences minimal change | Experiences a sustained and significant rise |
| Economic Impact | Targeted impact on specific sectors, industries, or consumer segments | Widespread reduction in purchasing power affecting the entire economy |
| Origin of Term | Coined after the 2009-2011 financial crisis | A long-standing and fundamental concept in macroeconomics |
| Cause (Common) | Supply shocks, localized demand surges, or specific market disruptions | Excess money supply, strong aggregate demand, or rising production costs |
For a broader understanding of economic principles like inflation, resources such as Investopedia's definition of inflation can provide additional context.
Implications of Skewflation
While the overall inflation rate might seem benign during periods of skewflation, it can still pose challenges:
- Unequal Burden: Consumers and businesses that heavily rely on the affected commodities will face higher costs, potentially leading to a decrease in their real income or profitability.
- Policy Dilemma: Policymakers might find it challenging to address skewflation, as conventional monetary policies aimed at curbing general inflation could inadvertently harm other sectors of the economy that are not experiencing price pressures.
- Distorted Perceptions: The stable overall price level might mask underlying price pressures in critical sectors, leading to a misperception of economic health.
Understanding skewflation is crucial for economists and policymakers to accurately assess price dynamics and implement targeted interventions that address specific commodity market imbalances without destabilizing the broader economy.
