Today we live in a world increasingly uncertain and full of potential threats to the economy.
First, the pandemic has had a significant impact on the world economy. The spread of the virus has caused a decrease in demand and production, due to the lockdown measures taken by many countries to limit the spread of the disease. Although many economies saw a recovery in the months following the first wave, further spread of the virus and the onset of variants continued to have an impact on global economies.
Secondly, the fiscal and monetary policies adopted by the world’s leading economies have played an important role in addressing the effects of the pandemic. Many nations have increased public spending and introduced expansionary monetary policies, such as low interest rates and asset purchase programs. However, these efforts have also led to an increase in public debt, which could have long-term effects on economic sustainability.
Moreover, the global geopolitical situation is influencing the world economy. The war in Ukraine, trade tensions between the US and China, Brexit and other global political events have led to changes in supply chains and trade flows, which have affected economic growth.
Climate change is also becoming an increasingly important factor in determining economic policies and investment globally. The need to reduce greenhouse gas emissions and adapt to climate change is leading to a greater focus on renewable energy, energy efficiency and “green” technologies, which can create new economic opportunities.
When does inflation raise prices?
In such an uncertain and easily influenced economy, inflation is a very important issue. This can affect everything from consumer prices to central bank monetary policy decisions. Recently, many countries have experienced an increase in the prices of goods and services, which has led to concern about rising inflation. In this article, we will explore the relationship between inflation and prices, as well as the causes and consequences of price increases.
First, we need to understand what inflation is. Inflation refers to the general increase in the prices of goods and services in an economy. This can be measured in several ways, but most economies use a consumer price index (CPI), which measures the increase in the prices of goods and services purchased by households.
For example, if energy prices rise, this can lead to higher fuel oil and petrol prices. However, if only energy prices rise and the prices of other goods remain stable, there is not necessarily an increase in inflation, but that is not the case.
The issue of inflation is particularly relevant today in many countries of the world. In the United States, for example, inflation has risen to its highest levels since 1982. The COVID-19 pandemic has caused a series of disruptions in the supply chain and labour market, which has led to an increase in the prices of goods and services.
- In the United States, the inflation rate has risen in the last months of 2021 due to a number of factors, including rising commodity costs, labor shortages, and the recovery of the post-pandemic economy. According to the US Department of Labor, the annual inflation rate in the United States was 7% in December 2021.
- In Europe, inflation has risen in several countries because of the same factors. In particular, inflation in the euro area rose to 5% in January 2022, a level not reached since 2008, according to the European Statistical Office.
- In Japan, inflation has been relatively stable in recent years, remaining below the Bank of Japan’s 2% target. In China, inflation was 1% in December 2021, up from 0.9% in November 2021, mainly due to rising food prices.
There are many causes of price increases, one of the main ones being demand. If demand for a good or service increases and supply does not increase at the same rate, the price will rise. For example, if there is an increase in demand for houses, house prices will rise until a new balance between supply and demand is reached. Another cause may be an increase in production costs, such as an increase in the price of raw materials used in the production of a good.
What happens when prices rise?
Rising prices can have many negative consequences.
- First, it can lead to a decrease in the purchasing power of households. If the prices of goods and services rise faster than the incomes of households, households can buy fewer goods and services.
- Moreover, rising prices can lead to higher interest rates, as central banks try to control inflation through restrictive monetary policies. This can make it more expensive to borrow money for buying houses, cars and other goods.
In conclusion, we can say that the global economic situation is facing one of the most difficult times in modern history, and this is leading to major changes in supply chains and national and international policies. Governments and central banks have the task of constantly monitoring inflation trends and adopting policies to keep inflation under control in order to generate a time-consuming economic recovery, but will ensure price stability and resume sustainable economic growth.
Giovanni Mannu
At Roncucci&Partners, we help companies develop themselves and their business, embrace change and evolve to thrive as a method and rigor within in a world that is increasingly complicated, treacherous, and requires many skills.
