Inflation is hitting hard across the globe

The spectre of the covid pandemic has often been feared, but as the time goes by, its effects are increasingly visible. A significant part of the world faces a severe inflation and no one can really predict how long it will last. What are the causes and the characteristics of this inflation? Here are parts of the solution :

Foto-Rabe | Pixabay

According to specialists, inflation in thirty percent of the world is superior to 4 % since the beginning of the year. These countries are mainly developing countries, that is those which are the most likely to have a bigger impact on the world economy.

In the eurozone, consumer prices increased by 3,4 % over a year in September whereas gas tariffs’ rise has not yet been taken into account. This is the highest number recorded since thirteen years, according to a report delivered by Eurostat on the 1st of October. Inflation has made progress each month in the eurozone since June. It hit 2,2 % in July and 3 % in August. In Spain, Germany and the United Kingdom, it now fluctuates around 4 %.

In America, inflation is even higher, especially in the United States. In July, prices have increased by 5,4 % over a year. According to the Federal Reserve System, inflation in the future should be higher than originally planned and should reach 4,2 % over the year. Financial aids allocated to households as well as vaccination in the country are responsible for this phenomenon.

Energy prices rose by more than 17 % over the year and represent half of the overall inflation’s increase. The other half comes from the increase of services and hard goods’ costs which reflect global supply difficulties and shortage of components. As a result, raw materials’ costs have also increased. « With mass vaccination, lockdowns are less implemented, which leads to more mobility in societies, which in turn fuels consumption», explains Paola Monperrus-Verroni, economist at the Crédit Agricole. « The rise in prices can be explained by an excess of demand in comparison to the available offer, as opposed to the previous year when we attended the opposite scenario ». As economies reopen, there is a stronger consumer demand and prices are bouncing back from drops during the pandemic in some sectors. At the same time, shipping costs have also increased. According to the OECD, persistent supply shortages could lead to a longer period of higher inflation.

A lot of economists are worried by this global situation, like those working at the Bank of America for example. According to one of them, « inflation is suddenly everywhere. Since the beginning of the year, the cost of tin has increased by 74%, the cost of gasoline by 60%, coffee by 52%, aluminium by 47% and the list goes on. The energetic crisis has reached historic proportions, with the cost of gas in Italy reaching a 385% rise since the beginning of the year ». The interviewed economist adds: « this inflation era puts an end to the era of largesses. In September, central banks have increased their rates thirteen times, the highest level since a decade. Besides, interest rates on government loans on both sides of the Atlantic have climbed since the end of August and they might go further».

Other economists are more optimistic though, and as Anne-Sophie Alsif – the head economist of the BDO analytical cabinet – says, «the inflation phenomenon is often linked to energy, because its prices are the most fluctuating. Let’s take the example of gas : we are consuming much more gas than in 2020 and around the same level than in 2019, 2018 and 2017, but at the same time gas production has fallen ».

Yvan Barbeau

Sources :

Benoît Jourdain, franceinfo: L’article à lire pour comprendre pourquoi l’inflation décolle avec la reprise de l’activité économique post-crise du Covid-19
BBC News: Inflation to remain higher for two years, warns OECD
Guillaume de Calignon, Les Echos: L’inflation en zone euro au plus haut depuis 2008

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