Inflation, paradoxically, is at the same time incredibly easy to understand and absurdly complicated. We are talking about it when the prices of a wide range of services and products are rising.
A ‘wide scale’ important: the price of a single item can fluctuate at any time depending on the change in taste.
If someone – let’s say – on the COMMUNITY MEDIA shares a video about the brussels sprouts that becomes fashionable in a short time, suddenly everyone wants to buy brussels sprouts, so the price of the brussels sprouts goes up. Meanwhile, last year’s fashionable vegetable, cauliflower, the dog no longer needs, so they’re wasting potom money on the market.
Such fluctuations are frequent and constant. The rising price of a product is simply the rising price, and the falling price is the “special” period.
Inflation, on the other hand, is a phenomenon in which the average price of almost every product purchased by consumers rises.
Food, real estate, cars, clothes and even toys are becoming more expensive.
Over the past roughly four decades, especially in this century, inflation in the United States has risen at an ideal, low and slow pace, in parallel with a well-functioning, consumer-oriented economy. reminds and CNN. Prices have risen by up to 2 percent a year – on average. Housing or health care has become much more expensive, while computers and TVs, for example, have become much cheaper, but overall and on average prices have remained relatively stable.
Worrying symptoms of inflation
Inflation is a problem as it transitions from slow steaming to fierce squeaking.
The economy is “overheated,” economists say. Inflation in the global economy is currently booming for a number of reasons, most notably the pandemic.
In the United States, prices rose 6.2 percent, the largest increase since November 1990 and well above the Federal Reserve’s long-term inflation target of around 2 percent.
At the same time, annual inflation in Hungary in October 2021 was 6.5 per cent – measured by the MNB according to.
In Hungary, too, the rate of dilution is higher than in others compared to the EU.
The economic effects merge a little with the psychological factor. This is because inflation has an aspect of economic behavior that can become a self-fulfilling prediction. If prices rise over a relatively long period of time, buyers are already expecting the price to rise. Because of this, they buy more because they think the items will cost significantly more the next day. In a word, demand is growing, which is driving up prices.
In addition, the crash hit.
The epidemic put a shovel on it
Last spring, when the coronavirus epidemic spread at an alarming rate, the world economy was virtually paralyzed. Factories around the world shut down, people no longer went to restaurants, airlines didn’t launch flights. Millions of people have been left without work as the business has closed overnight. The unemployment rate in the United States has swelled from 3.5 percent in February 2020 to nearly 15 percent.
We have witnessed an unprecedented economic downturn.
By the beginning of the summer, however, demand for consumer goods had picked up. Faster than expected. The stimulus package suddenly piled on Americans with cash and unemployment benefits. People started shopping again. Demand grew exponentially, with supply failing to keep pace.
Car manufacturers, for example, came to a temporary halt at the start of the Covid crisis, like any sensible business, to reduce losses. Shortly afterwards, however, demand for cars also skyrocketed as people were concerned about the risks posed by public transport and also avoided flying. For automakers, this situation has meant a cane run.
A lot of parts are needed to make a car. They come from many different factories in the world, produced by highly skilled workers in other parts of the world. Restarting such a complex operation is in itself time consuming, it takes time to reactivate, and it takes even more time for workers to fall ill in the process.
Economists define inflation as a state where too much money chases too little goods. This is exactly what happened to cars, real estate, and many other suddenly sought-after products.
Supply chain bottleneck
It is well known that with high demand and limited supply, prices are rising.
However, prices will rise even more if high demand is compounded by production delays and production delays.
The operation of any modern car relies on computer chips. However, these chips are also used in mobile phones, home appliances, TVs, laptops and dozens of other products, for which, unfortunately, the demand for shopping has increased at the same time.
As new cars arrive slowly, demand for used cars skyrocketed, including in Hungary, which further fueled inflation. In some glaring cases, car owners were able to sell their used car for more than they had paid for it a year or two earlier.
What the future will bring?
Economists say prices and wages are likely to rise even in 2022. But how long and at what pace depends on a myriad of variables around the world.
The top priority for policymakers is to close supply chain bottlenecks so that goods move at a pre-epidemic pace. This is much easier said than done. What’s more, it is unpredictable when the shocks – a resurgent Covid mutant, a huge container ship stranded on an important waterway, or a natural disaster – will stop it from recovering.
In the United States, economists and investors expect the central bank, the Fed, to tighten monetary policy by raising interest rates and curbing emergency stimulus, slowing the pace of inflation. If lending becomes more expensive, it could ease the pressure on price rises and the economy could return to a process of gentle steaming.
Yellen says inflation will stay high until Covid is under control https://t.co/DvUWgAEgG8
— Financial Times (@FinancialTimes) November 14, 2021
Inflation can only be kept under control by curbing the epidemic
– quoted the U.S. Treasury Secretary to the Financial Times.
Janet Yellen expects the rise in the price of used cars and fuel to slow down only in the second half of next year, but only if the pandemic is brought under control.
(Cover image: Angel Garcia / Bloomberg / Getty Images)