3 hours ago
Have you noticed that you have been spending more money on your supplies lately? Or you may have noticed that you can no longer afford some of the things you might have bought before.
The reason for the price increase that we are observing at the moment is the high rates of inflation. According to the International Labor Organization, the annual inflation rate globally more than doubled during the period from March 2021 to March 2022.
The inflation rate in March 2022 was 9.2 percent, compared to 3.7 percent during the same month last year.
A higher rate of inflation means an increase in the prices of basic goods and services such as food, energy, transportation and clothing, which in turn raises the cost of living.
What is inflation?
Simply put, inflation refers to the rise in the cost of goods and services over a certain period of time.
The money you carry in your pocket will buy you a smaller amount of a commodity than usual.
Why does it happen?
It may sound complicated, but there are simple reasons for inflation. Here are two examples:
• Demand-induced inflation
When the demand for goods or services increases, it can lead to an increase in prices. It usually happens when the economy is going through a recovery phase, and people feel confident regarding the economic conditions, which leads them to spend more money rather than save it.
Demand-induced inflation begins with a rise in consumer demand. Merchants try to meet demand by increasing the supply, and when there are not enough additional goods to increase the supply, traders raise their prices, which leads to demand-induced inflation, also called “price inflation”.
• cost inflation
This occurs when the cost of producing goods or services rises, and that rise passes on to the consumer.
This is what we have seen recently around the world. The COVID-19 pandemic and the war in Ukraine have disrupted supply chains and made it difficult for companies to produce and deliver goods, but we’ll look at that in more detail later.
How is the picture different around the world?
In many countries, inflation has hit a double-digit rate over the past few years.
In Turkey, for example, the annual inflation rate has risen to 70 percent recently, in Argentina it has reached regarding 51 percent, and in Sri Lanka, which is suffering from an economic crisis and has experienced a state of instability and its prime minister was forced to resign. The inflation rate was regarding 30 percent in last April.
In Iran, there have been demonstrations due to rising food prices. The official rate of inflation is around 40 percent, but some estimates put it above 50 percent.
What is hyperinflation?
Hyperinflation, or runaway, refers to conditions out of control.
The term hyperinflation is used to refer to a high and accelerating rate of inflation that leads to a decrease in the real value of the local currency.
It happened in many countries such as Lebanon, Venezuela and Zimbabwe.
Let’s take wheat, for example. Ukraine and Russia are two of the world’s largest exporters.
Many countries depended on wheat imports from these two countries, but with the outbreak of war in Ukraine, grain exports were disrupted, which eventually led to reduced supplies and higher prices.
Things become more complicated when wages cannot keep pace with the rising rate of inflation.
This leads to a decrease in purchasing power, which makes it difficult to maintain your same basic living standards.
What is causing inflation now?
There are a lot of factors.
As mentioned earlier, the war in Ukraine and the COVID-19 pandemic have had a significant impact, but combined with drought in some regions and local economic policies, all contribute to higher prices around the world.
The COVID-19 pandemic, disruptions in supply chains and a shortage of workers have contributed to the rise in prices of goods such as gas, food, cars and furniture. The war in Ukraine has also had an additional impact on oil and gas prices. This is in addition to the contraction of wheat production in both Ukraine and Russia.
Rising energy prices affect almost everything, from heating homes to moving goods to continuing production in factories.
According to the data of the global commodity market issued by the International Labor Organization last March, the prices of wheat and oil rose at a rate of regarding 50 percent compared to the previous year. The prices of other grains are also rising.
“For importing countries, price increases represent a major obstacle to economic growth and living conditions, leading to the potential for increased social and economic tensions,” Valentina Stowska, an expert in the Statistics Division of the International Labor Organization, wrote in her report.
Is inflation always a negative thing?
The short answer is no, but the explanation of the reasons is rather complicated.
If wages rise at the same rate as inflation, then inflation has little effect.
But when a person’s wages do not rise in line with the rate of inflation, then the value of the money they have falls.
Of course, this may make life more difficult, as the prices of rent and food suddenly rise and become difficult to keep up.
But inflation can positively affect the economy, as it may lead to increased production.
Increasing production may mean raising wages and increasing jobs, goods and services, and this in turn can offset the effects of inflation.
Is there a way to control inflation?
Yes, there is a way, but it is not simple because not all factors leading to the high rate of inflation can be controlled.
Among those factors are global supply chain problems caused by the COVID-19 pandemic and the war on Ukraine.
But in general, central banks or governments or both can control inflation rates.
Monetary policies include adjusting interest rates, and some economists believe that higher interest rates would reduce demand for goods and services, which in turn would slow economic growth and thus reduce inflation.
Other methods of controlling inflation are considered by financiers and economists to control the money supply and increase the income tax.
But if you are reading this article at a time when you are finding it very difficult to buy basic commodities whose prices have skyrocketed, it may be too late to control inflation.