Rising Global Consumer Inflation

Introduction

Consumer price inflation is becoming more and more dangerous in this fast-growing era, causing tension all around the globe. The rising inflation affects the economies collectively, businesses around the globe, and households. Also, it is now the biggest challenge against policymakers and consumers worldwide.

Causes

• The first and main reason behind the rising consumer inflation is the outbreak of the COVID-19 virus or the COVID-19 pandemic. The shutdown of economies and businesses, delays in the import and export of goods and services, and labor shortage, collectively caused the increase in the cost of production.
• The global shift towards renewable sources of energy across all sectors of the economy is also a reason for the rising inflation. The set-up cost or the investment cost in renewable energy is comparatively high which is passed on to the end consumer.
• In the era of world economic slowdown, the central banks worldwide increased the money supply for the stability or positive growth of the economies. But if it is not managed properly then it can lead to a rise in the inflation numbers.
• The world shutdown of businesses led to a shortage in the labor force, which further affected labor costs. Due to less no. of labor available the labor costs for businesses which were operating on half of the capacity, had significantly increased.
• Before the pandemic the interest rates were not so much, which led to lower borrowing costs and increased the purchasing power of the end consumer, which further led to an increase in demand of the commodities due to less supply of the more demanded commodities the prices of the same rises.

Effects

• Due to the rise in the prices of commodities globally, the purchasing power of the lower and middle-income class households has disproportionately decreased, who only spend first on essential goods and services and save, invest, or fulfill other needs (like vacations or buying non-essential items for self-esteem).
• People who are into the investment in assets like real estate and stocks, see their wealth grow due to a sudden rise in these classes of investment. On the other hand, people who are not into it and are fixed income class and also have very limited savings struggle to live in the era of rising inflation numbers. This can be also said of income inequality.
• Due to the increase in labor cost and also the cost of raw materials, the cost of production of the goods has significantly increased. The smaller manufacturing units can’t survive on this increased cost of production, which further leads to either shutdown or reduced manufacturing capacity.

How it can be controlled?

• Rise in the technology sector and more advancement of artificial intelligence can improve the techniques of production which can lead to a reduction in the cost of production and a further decline in the prices of commodities which might help to reduce the pressure of rising inflation.
• Careful and proper management of the monetary policies, by the central banks can help the nations to control the rising inflation numbers.
• Resolving the geopolitical tensions, and trade cooperation among the nations worldwide can help in curbing the rising inflation in the commodities globally.

Conclusion

Conclusively inflation is rising due to the pandemic shutdown, and international trade tensions which pose challenges for economies around the globe. This impacts the purchasing power, disturbance in the supply chain, disturbed monetary policies, and volatile labor market. In the future it can be curbed by advancements in technology, proper management of monetary policies by nations, and resolving geopolitical tensions between the countries which may improve the supply chain and stabilize energy markets. The comprehensive and collective approach of the nations globally can lead to better stability in the world economy and slow down the pressure of the rising inflation numbers.