The peculiar relationship between inflation and theft

Scott La Franchie, FIRST Security’s General Manager – Marketing and Product, writes that academic research points to a positive correlation between inflation and the incidence of property crime: as inflation increases, so too does theft.

Inflation is often characterised as the ‘invisible thief’ due to the fact that high inflation rates result in devaluing people’s savings. If a $50 bag of groceries is now costing you $55 at the checkout thanks to inflation, it can feel like someone’s just picked $5 from your pocket.

That feeling of being ‘robbed’ is currently pretty raw among New Zealand’s motorists, who’ve been suffering eye-watering price hikes in recent days at the pump. But while that feeling of being short-changed may be well justified, according to a range of research there exists a far more substantive correlation between inflation and theft.

While we’re talking fuel prices, it’s interesting that?the MTA noted ?a couple of years back that service station fuel thefts were rising in New Zealand along with the price of petrol and diesel. “When fuel prices started rising in late 2017,” stated the MTA, “so too did the number of drive-offs.”

In a news article?published yesterday , the ABC in the US similarly noted that ”as gas prices continue to rise, so have reports about gas theft, either through stolen credit cards, or straight out of the tank.”

But what about inflation beyond the pump?

Research identifies inflation as crime driver

Traditional wisdom indicates?that during financial crises, unemployment surges, falling wages and other economic stressors lead to spikes in shoplifting and theft. A recent?Bloomberg report ?is a case in point, stating that the “last time consumers were under severe strain — in the wake of the 2007 financial crisis, amid rampant job losses and spikes in prices for food and fuel — shoplifting surged.”

But according to Brent Orrell, a Senior Fellow at the American Enterprise Institute, it’s inflation to blame, not unemployment or falling wages, for increases in thefts and other crimes.

In an piece?published last October , Orrell wrote that traditional views on the relationship between economic downturn and crime didn’t hold up during the Global Financial Crisis-induced recession of 2008-10. “Even though unemployment soared, real wages fell, and consumer sentiment hit record lows, the FBI’s?2009 Uniform Crime Report?showed declines in both violent and property crime.”

Orrell cites the work of University of Missouri-St Louis Emeritus Professor Richard Rosenfel, who found that in the case of both the Great Depression of the 1930s and the recession of 2008-10, an increase in unemployment and a drop in crime rates occurred in the context of deflation. In other words, during the 2008-10 recession, there wasn’t any inflation – and no increase in crime despite the tough economic times.

It’s important to note that these two economic downturns are by no means historical outliers as manifestations of the correlation between inflation and theft. Researchers have also noted a pattern of statistical increases in crime during historical periods of rising inflation, adding further weight to the argument that inflation – as opposed to other economic stressors – is the key link between the state of the economy and crime.

In a 1981 dissertation titled?Inflation and Incidence of Crime in the United States , S.Chungviwatanant studied the correlation of four types of crime and Consumer Price Indexes (CPIs) from 1960 to 1978. The results demonstrated that with trends in inflation moving towards annual increases of 4.5 percent (5.1 percent for food), “trends in the seven specific crimes were also moving toward increases, with an average yearly increase of 3.4 percent for murder, 6.8 percent for aggravated assault, 6 percent for burglary, 5.7 percent for larceny, and 5.9 percent for auto-theft”.

Orrell similarly notes that “in the 1970s, when inflation and unemployment took hold at the same time—the era of “stagflation”—crime rates rose. Inflation, not general economic hardship, appeared to be the culprit behind rising crime.”

Inflation creates a market for stolen goods

So, what’s the theoretical explanation for why inflation leads to crime? “As prices rise, consumers tend to “trade down,” or substitute cheaper goods and services,” explains Orrell. “But for individuals who were already buying the cheapest goods (for example, shopping at discount outlets), the market in “hot” goods may be the only place where they can find what they need at prices they can afford.” According to the theory, this demand for cut-price stolen goods incentivises thieves to create supply.

The theory plays out in a?study published in 2007 ?by the journal?Global Crime, which examined the relationship between crime and inflation and unemployment in the United States from 1960 to 2005. “Crime rates rise as the inflation rate rises,” wrote the authors. “Because of the lag between price and wage adjustments, inflation lowers the real income of low-skilled labor, but rewards property criminals due to the rising demand and subsequent high profits in the illegal market.”

This is further borne out by Professor Richard Rosenfel’s?2019 paper ?“Crime and Inflation in U.S. Cities”, which found that inflation increases property crime rates, such as theft, in less affluent cities more so than in well-off ones.

Keeping inflation in New Zealand in check

Ultimately, according to these pieces of academic research, inflation truly is an ‘invisible thief’. By lowering the real incomes of those already struggling to make ends meet, inflation results in an increase in the demand for stolen goods, and in doing to it creates an economic environment that motivates thieves – both of the opportunistic and organised variety.

New Zealand has?largely avoided ?inflation hikes of over five percent since the early 1990s, and along with historically low inflation, New Zealand’s crime rates have generally kept to a?downward trend ?since the mid-1990s. But with annual inflation having just hit a?three-decade high ?at 5.9 percent, this may be changing.

According to the?Reserve Bank of New Zealand , transient – or short-term – inflation can be caused by “a rise in the prices of imported commodities, such as oil”, and structural inflation results from “widespread shortages of labour and materials.” Now, it appears, we may be dealing with both.

If the RBNZ is again unable to prevent annual CPI from increasing substantially beyond the 1-3 percent stipulated by its current Policy Targets Agreement (PTA), then the theory tells us that we can expect to see a rise in the incidence of theft and other property crimes.

Here’s hoping we manage to keep a lid on those prices!

I look forward to highlighting more research-based crime and security insights in future blog posts. In the meantime, don’t hesitate to get in touch to discuss how FIRST Security can assist your organisation to mitigate its security risks.