This Wednesday, India’s ministry of statistics informed that consumer price inflation in October fell to 0.25 percent—the lowest since January 2012. Indeed, food inflation for the month dropped to -5.02 percent. The price fall is magnified by the base effect—for instance, food inflation in October 2024 was a searing 9.7 percent, distorting the October 2025 reference. For folks at home, however, claims of lower inflation seem, in the words of H G Wells, as absurd as saying solid earth was liquid.
The cynicism is global. Inflation is trending lower at around 2.2 percent in advanced economies (and 0.2 percent in China). Yet, public response to headlines about falling inflation across India and the world ranges from a dismissive diatribe to an honest query: why doesn’t it feel so? There is the political semantics. Politicos are quick to present the dip in rate as a fall in prices. Then there is the fact that, while the rate at which prices rise may be slower, the absolute price of household consumption items hover at historic peaks.
The optics of low inflation has catalysed global rage on the rising cost of living. Politicians understand the politics of economics—they comprehend the consequences on their popularity and power. Last week, Trump trolled those who critiqued tariffs, calling them fools, and announced a $2,000 dividend to American families. On Friday, Trump blamed Joe Biden and withdrew tariffs imposed on every country on beef, banana, cocoa, coffee, tomatoes, tea, and avocados, a popular filling in tacos. As Trump’s ratings plunge to 36 percent, the operative phrase is affordability.
Political meteorology is not unique to the US. In India, GST rates were cut just before Diwali in the run up to the Bihar polls. Every election arrives with a caravan of cash benefit transfers. Schemes don’t always await elections and can arrive mid-term, too. This week, Assam Chief Minister Himanta Biswa Sarma launched a new scheme to provide pulses, sugar, and salt at subsidised prices to ration card-holders. Delhi CM Rekha Gupta will launch on December 25 a hundred Atal Canteens, which will provide subsidised meals at Rs 5.
The rage about costs is visible across the globe. Republicans lost to Democrats in the latest US polls. New York, the capital of capitalism and home of Wall Street, elected Zohran Mamdani, a socialist who promises a rent freeze. Trump has floated the idea of 50-year mortgages to assuage the anger. In the UK, the Labour government led by Keir Starmer faces a civil war within and the rise of Nigel Farage’s Reform Party. Fearful Starmer and Chancellor Rachael Reeves eschewed cuts in expenditure and are set to hike taxes on the rich to fund welfare.
In France, Prime Minister Sébastien Lecornu, who has survived two votes of confidence, shut down President Emmanuel Macron’s controversial pension reforms plan. In Germany, the traffic-lights coalition of SPD and CDU led by Olaf Scholz fell apart in February, only to come together again. Scholz faces public ire over living costs that top the list of ‘fears’, alongside welfare cuts and housing access. In Japan, the new regime led by Prime Minister Sanae Takaichi is expected to announce a stimulus package exceeding ¥14 trillion to cushion the blow to households from the rising cost of living and investments for growth.
The cost of living crisis is fuelled by the equation of wages and inflation. While wages have improved since 2022, real wages have not, as inflation has eroded purchasing power. On Friday, the White House estimated workers lost over $2,900 in purchasing power during the Biden regime. Real wages in OECD economies remain below 2021 levels. Across a broader sample mapped by the ILO, minimum wages remain below inflation; real wage growth is negative in over 70 of the 160 countries. Thanks to a skewed distribution, the gap between the top and bottom 10 percent, a 2025 G20 paper states, is the highest in India and Indonesia.
The situation is worsened by the fact that labour’s share of GDP has shrunk and that of capital has expanded—labour’s share has dropped to 52.3 percent in developed economies and is distinctly lower in emerging economies. In India, Chief Economic Adviser V Anantha Nageswaran called out the corporate world while saying that “workers’ salaries have not grown commensurate with corporate profits”, which are at new highs. He warned this will come back to bite them as it will shrink consumption. Presumably, the message has hit home.
Be that as it may, labour’s income share is on a decline in Australia, Indonesia, Mexico, and the US. Obliged governments are stepping to mitigate the impact. This has driven up deficits—31 of the OECD countries are running deficits and only six have a surplus. Five of the G7 nations run fiscal deficits, with the US at the top with 7 percent and $37.64 trillion—125 percent of GDP—in debt. In India, the enlargement of electoral sops has widened deficits in states and increased debt. Already, the IMF has warned that global debt, now at $111 trillion, is unsustainable.
Central banks that are still fighting the last cycle of inflation are being pulled in the opposite direction. For instance, Trump wants to issue tariff checks even as the deficit deepens, and yet, is asking the Federal Reserve to cut interest rates. Global governments are faced with a conundrum. Without growth, the steps to ease the cost of living are adding to the burden of debt—and to the cost of living.
Read all columns by Shankkar Aiyar
Shankkar Aiyar
Author of The Gated Republic, Aadhaar: A Biometric History of India’s 12 Digit Revolution, and Accidental India
(shankkar.aiyar@gmail.com)