제 16 호 Inflation All Around the World
- 작성일 2022-11-30
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Kicker: COVER STORY (Inflation)
Inflation All Around the World
Yeong-Jin Choi, Editor
Are you aware of the fact that prices of every product all around the world are increasing at a steep rate because of the war between Russia and Ukraine? Some might question why some products that seems like they have nothing to do with the war, apples, and Bluetooth speakers, for instance, are also becoming much more expensive. The real problem, though, is the exchange rate. Experts are pointing out that the exchange rate between the won, the Korean currency, and the dollar in the United States will keep on rising, implying that all the prices of the products being imported from the U.S. will be more and more expensive. As a person who recently went to America for more than a month, I was able to actually feel the seriousness of inflation and high exchange rate between the won and dollar by spending much more money than I had planned firsthand. This circumstance is not only limited to the United States, as I have already mentioned above. It is seriously impacting Korea’s economy as well, resulting in critical damage to financial spending on Koreans.
What is Inflation?
What is inflation? Inflation is a measure of the rate of rising prices of goods and services in an economy. If inflation occurrs, leading to higher prices for basic necessities such as food, it can have a negative impact on society. It can occur in nearly any product or service, including care and utilities, as well as want expenses, such as cosmetics, automobiles, and jewelry. Once inflation becomes prevalent throughout an economy, the expectation of further inflation becomes an overriding concern in the consciousness of consumers and businesses alike. Inflation can be a concern because it makes money saved today less valuable tomorrow. It erodes a consumer’s purchasing power and can even interfere with the ability to retire.
Various types of Inflation and Their Causes
There are various factors that can cause inflation in an economy. Typically, inflation is caused when prices increase due to increases in production costs, such as raw materials and wages. This is called “Cost-Push Inflation”. Another factor that causes inflation is natural disasters. Hurricanes and tornadoes, for example, may destroy produce from the farm, resulting in the goods to be more expensive in the market. When strong consumer demand for a product or service, and a surge in demand for a wide breadth of goods across an economy, their prices tend to increase. This is called “Demand-Pull Inflation”. When the demand for a particular good or service increases, the available supply decreases. When fewer items are available, consumers are willing to pay more to obtain the item, resulting in a price increase on the products. Companies can also cause inflation. If consumers are willing to pay for the companies’ popular products, corporations may raise prices to gain more benefits. If enough people expect inflation to continue in the future, the price of goods and services will rise. Since people’s common expectations that the economy would not be stabilized in the near future prolongs, workers may start to demand higher wages in order to anticipate rising prices and maintain their standard of living. Ultimately, since increased wages would result in higher costs for businesses, they would try to obtain their revenues from their buyers, creating “Built-in Inflation”.
How Does the Russian Invasion of Ukraine Result in Inflation Worldwide?
Experts say, however, that the recent rise in inflation all around the world, especially in the United States of America and in European countries, is unusual. The recent rise in inflation is odd because it came on very quickly and sharply. International factors like bottlenecks* in global supply chains and the Russian invasion of Ukraine play an important role in driving inflation. Many already know that economic activity had been recovering as lockdown measures from the COVID-19 pandemic gradually eased. However, unlike their expectations that economies worldwide would eventually recover, inflation took the place.
Russia’s Invasion on Ukraine
Financial experts tend to focus on the negative effect of the Russian invasion of Ukraine, such as inflation and hinderance of economic growth. Commodity markets are in turmoil and financial markets have been highly volatile since the start of the conflict, and this impacts on higher household spending. The real problem is that the inflation is expected to last more than several years. Experts continue to expect higher commodity prices because of the disruption to food and other exports from Ukraine and the sanctions imposed on exports from Russia. Modeling assumptions of economic experts tell us that the war between Russia and Ukraine has led to a 30 percent increase in oil prices, 90 percent increase in European gas prices, and a 17 percent increase in food prices. Naturally, higher energy prices feed into inflation, and the study tells that the war in Ukraine will add about two percent to global inflation in 2022, and one percent in 2023. To sum up, it is very likely for us to understand that the invasion of Ukraine by Russia is causing a severe price increase on three factors that causes inflation worldwide: food, transport, and energy.
*Bottleneck: A place where a road becomes narrow, or a place where there is often a lot of traffic, causing the traffic to slow down or stop.
Even though the negative impacts of COVID-19 are starting to fade away, we cannot deny that many people all around the world are still suffering with the aftereffect, like losing their health and some losing their jobs. To those who are struggling to make a comeback from COVID-19, inflation occurring can be a life-or-death situation. I feel that stabilizing the global economy is the utmost situation that can reduce many people’s financial stress. Therefore, I truly hope for the best and for the situation to improve for the happiness of many.
Sources:
https://url.kr/q6oin2