Inflation & economic turmoil: political decisions in markets

Rocketing inflation has characterised the economic landscape around the world in recent years. A wide range of political and economic factors have sent prices soaring, and central bank interest rates have followed them. That had a significant effect on household budgets, as people struggled to make ends meet. This was especially the case with food inflation, where prices increased by double digits. The result was a spiralling cost of living, leaving many people in the tragic position of having to choose between heating and eating.¹

When politics clashes with economics, the consequences are rarely pretty. During a chaotic situation like this, companies often have to make weighty decisions to adjust to the economic landscape around them. For example, there was a string of mass layoffs, especially among technology companies, with many thousands of workers losing their jobs.

Similarly, big companies often make decisions during these difficult economic times which have a ripple effect through the wider economy. For example, Unilever, a food and cosmetics company, recently announced it is hiving off its ice cream brands. Depending on how they are handled, big calls like that can have a good or bad effect on inflation and the cost of living, especially when politics is involved.

Politics was the driving factor behind Unilever’s decision, which makes its interaction with the financial markets all the more interesting. Unilever’s best-known ice cream brand, now abandoned, is Ben & Jerry’s, which allowed politics to cloud its balance sheet. Ben & Jerry’s made a name for itself through determined political campaigning, often on controversial and sensitive subjects. Many suspected it of clickbait and stoking outrage rather than sincerity.

For example, Ben & Jerry’s once chose July fourth as the day to lambast Americans for their country’s history, putting out a statement stating that “the US was founded on stolen Indigenous land.”² This seems designed to grab attention rather than genuinely help empower Indigenous communities, and certainly not to sell ice cream.

The same phenomenon is clearly present in their environmental campaigning. Ben & Jerry’s viciously attacked palm oil, which is often used as an ingredient in ice cream and many other products made and sold by Unilever, its parent company. Ben & Jerry’s claimed palm oil was fuelling deforestation and called for a boycott.

Deforestation is a major and genuine issue, but Ben & Jerry’s approach was unfortunately disingenuous. There is a widespread consensus from environmental research bodies, such as the WWF and Global Forest Watch, that the best way to stop deforestation in supply chains is to back sustainable palm oil, not boycott palm oil altogether.³

This pattern of behaviour from Ben & Jerry’s followed a broader trend of brands becoming more political but was out of the ordinary in its dramatic tone and content. It likely contributed to Unilever’s decision to pull the plug. This case is a prime example of politics directly affecting the economic and commercial landscape in ways which affect consumers. If more brands behaved the same way, putting their profitability at risk for the sake of attention-grabbing political campaigns, that would be profoundly worrying for the broader economic situation.

Ben & Jerry’s lies at the extreme end of the overlap between politics and economics. Their campaigning, such as on palm oil, was so detached from reality that its economic and environmental impact was likely entirely negative. It missed, for example, the fact that Malaysia, a key palm oil producer, has seen remarkable progress in tackling deforestation from palm oil in recent years.

Ben & Jerry’s and any other companies considering launching a campaign against palm oil, would do well to pay attention to the Malaysian successes. Global Forest Watch has reported that primary forest loss in Malaysia decreased by almost 70% between 2014 and 2020, with 2020 being the fourth straight year that palm oil deforestation has been trending down.⁴

A ‘no deforestation, no peat, and no exploitation' commitment from the Malaysian palm oil industry has also contributed to the encouraging trend.⁵ In 2023, more research from Global Forest Watch revealed that Malaysia bucks the global trend, drastically cutting deforestation while other countries fail. Brazil, for example, sees huge cattle and soy farming, contributing to the loss of eleven football pitches’ worth of land per minute in 2022.⁶

Given the backdrop of Ben & Jerry’s chaos, this news on palm oil is encouraging for two very different reasons. Firstly, it is very good for the environment.⁷ Secondly, it is a positive sign for the broader economy. It means repeats of Ben & Jerry’s saga are unlikely, because it is clear that palm oil boycotts do not help the planet.

The inflationary shock lasted much longer than many predicted, especially when it came to food prices. Around the world, central bank interest rates remain high because those setting the rates want to be certain inflation is not coming back up before they drop them.⁸ But the encouraging signs are there if you look for them. There is reason to believe the worst of the cost of living crisis has passed and that in the foreseeable future, the situation will begin to gradually improve.