Thursday, March 28, 2024 | Ramadan 17, 1445 H
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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

Is inflation coming to stay?

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Inflation is growing in most parts of the world. In the US inflation jumped from around 1.5 per cent early this year to nearly 5 per cent recently. One of the key reasons seems to be the stimulus plan that brought too much liquidity to the market.


There is however, a multitude of other reasons behind growing inflation around the world. One of the lowest hanging fruits to identify as a key reason — in my opinion — is a price rebound. In 2020 the price of many products and services collapsed.


Naturally, as the pandemic restrictions are being lifted in many parts of the world, people are going out finally shopping and spending the money that did not spend last year. By doing so, a surge in demand could be one of the reasons for prices to climb up.


In the Euro zone in particular, the consumer confidence dropped by half in 2020, and rebounded solidly — back to pre-Covid levels — in 2021.


Similarly, in the USA, the consumer confidence dropped by a third, to then spike back to “normality”. A different picture is painted by consumer confidence charts for India, where the decline has yet to recover. Rather, the confidence level is projected to continue to decline throughout 2021, probably due to the scarcity of cash and savings.


If this was a key cause for inflation thought, it would not last long. In fact, the International Monetary Fund - World Economic Forum’s most recent forecast for Real GDP growth (year on year) showed a significantly less optimistic picture then before.


While 2021 was seen as a booming year for the reasons shared above, 2022 is shown in decline for all countries taken in consideration.


India’s GDP is projected stabilise at 6 to 7 per cent from 2022 onwards, down from the peak of over 12 per cent in 2021.


The United States projection is also a downtrend, but less sharp: from 8 per cent in 2021, to 4 per cent in 2022, to less than 2 per cent in 2023, and finally a small rebound between 2 to 3 per cent in 2024.


The Euro zone is projected in slow decline from the current 4 per cent, but only from 2023, down to 3 per cent and then stable from then onwards. China is shown as one of the most solid economies after pandemic, from the current 8 per cent down to 6 per cent next year and stable at 5 per cent from 2023 onwards.


Another cause could be identified in supply bottlenecks. The 2020 lockdown caused several interruptions to manufacturing of goods all around the world. As demand grows strong again in 2021, manufacturers are still catching up with orders, thus affecting the natural price point between demand and supply. Microchips and semiconductors are some of the most affected products.


Commodity prices are also one of the main causes of inflation. As many forms of transportation were halted during the pandemic, raw materials and commodities became more scarce.


Global unemployment is still quite high, yet jobs vacancies in the US for example at still high.


This could be due to the cash support provided during the pandemic, where unemployment cheques offered a safety net to many who lost their jobs in 2020, but have continued to receive economic support until now. In the US, this is likely to change from July, when the unemployment cheques will be cut in most states. [The columnist is a member of the International Press Association]


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