Inflation: The Upcoming Crisis?

The word inflation may be one of the most familiar words you have heard in economics. And nowadays many experts, new reporters are constantly talking about it. That is because in the past few months, we have seen increasing prices virtually in everything, from groceries, to electronic equipment, and to gasoline. The sudden boom in prices is causing a rise in the inflation rate at an alarming level. In the United states overall prices climbed 6.8% year-over-year, the largest increase since June 1982. In the last month alone a 0.8% rise was seen. A high inflation rate is by no means solely a US concern. A Pew Research Center analysis of data from 46 nations finds that, in the third-quarter 2021 inflation rate was higher in most of these nations than in the pre-pandemic third quarter of 2019. For instance, the eurozone recorded its highest inflation rate since the monetary union at 4.9%, with German inflation at a 29-year high of 5.2%. Emerging markets have also had very sharp inflation increases, Turkey, Brazil, and Russia recorded 21.3%, 10.7%, and 8.4% YoY growth. Now if you are thinking what I have to worry about these rising numbers. Well for that you need to understand how inflation affects your financing.
So, Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country. But it can also be more narrowly calculated for certain goods, such as food, or services, such as a haircut, for example. Whatever the context, inflation represents how much more expensive the relevant set of goods or services has become over a certain period, most commonly a year. That means the higher the inflation rate per year, the more money you have to pay for every product or service you use and that affects your personal financing. And to measure the average consumer’s cost of living, government agencies conduct household surveys, it is called consumer price index (CPI).
Now it is not like inflation is very bad for the economy, but a very low level of the inflation rate is always good, in fact, many advanced economies target 2 to 3 percent of inflation. We have talked about inflation and its different forms in different videos. Please check that out, if you want to know more about it. Now the main question is why we are seeing a sudden rise in the inflation level.
Well, there are multiple events that happened in the past few years. Like during the lockdowns, the demand of various products suddenly dropped, at the same time many industries also stopped their production which created problems in the global supply chain. In order to create demand in the economy, many countries announced various stimulus packages and poured trillions of dollars into the economy. As a result, demand skyrocketed but the supply was low, and prices of various products increased which caused the higher inflation rate. In this the disturbing supply chain is a major problem that the world is facing right now. This disturbance has many reasons. First is the slowdown in the manufacturing sector. You see during the lockdowns the labor force around the world has suffered tremendously, many of them lost their job during this crisis. But when the lockdown opened and factories restarted we saw the worker crisis. Many of the workers changed their profession to part-time jobs or entered the informal sector. At the same time prices of commodities such as coal, crude oil, and natural gas increased, hurting further the manufacturing sector. Due these problems manufacturing sector still did not reach its full potential to fulfill the demand.
The semiconductor industry is good example of this. As you might knowing, semiconductor chips have a wide applications, they are used in many products from smartphones to computers, and even cars, today worldwide more than 1 trillion semiconductors chips are manufactured. The demand for these smart gadgets has increased tremendously. But the manufacturers of these chips cannot make up for the higher demand which has resulted in slower production of car computers and other products and a rise in the cost of these products.
Rising fuel prices also hurt the transportation sector and as you know due to globalization higher the transportation cost of goods means higher the price you have to pay for any products. It affects countries who are dependent on cheap fuel prices for their economic growth such as India and China.
So it seems like inflation is gonna stay here for some time. The longer it stays the more serious the threat of economic slowdown becomes. And we might have to face higher prices for longer than anticipated, and investors will have to hope the central banks don't raise interest rates more quickly than expected.
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Видео Inflation: The Upcoming Crisis? канала Global Economics