Most countries in the world are witnessing a significant rise in the cost of living and food. The annual global inflation rate is set to reach 6.7 percent this year, according to the United Nations.
In Britain, annual inflation hit a 40-year high in April, at 9 per cent, with food and energy prices soaring. The annual inflation rate in the United States last month was 8.3 percent.
On Wednesday, the United Nations significantly lowered its forecast for global economic growth this year from 4 percent to 3.1 percent, saying that the war in Ukraine had increased global food and commodity prices and exacerbated inflationary pressures, denting the fragile recovery from the Covid-19 pandemic. 19.
The mid-2022 forecast from the United Nations Department of Economic and Social Affairs said the downgrading of growth forecasts is widespread, including the world’s largest economies – the United States, China and most importantly the European Union – and a majority of other developed and developing countries.
Even in the poorest countries, prices have risen dramatically, which has raised fears of social unrest in some countries. The United Nations has warned that 18 million people in the Sahel region will face acute hunger in the next three months.
Economists date the onset of global inflationary turmoil today with the outbreak of the coronavirus. Its spread has clearly been an economic shock, with borders closed and businesses and factories shutting down.
But it was only when the world began to recover from that initial shock that inflation began to emerge, and this was the result of what economists call the “fundamental effects” of the crisis; Because prices were low or stable during the pandemic.
With reduced demand and travel restrictions, supply chains have been turned upside down. And when countries came out of lockdown, there was often an increase in demand that drove up prices, especially in services such as tourism.
Russia’s war on Ukraine
With the imposition of US and European sanctions on Russia, one of the world’s main energy sources, fuel prices for consumers in most countries of the world have risen, with the price of a gallon of gasoline in the United States exceeding $4 for the first time this month.
International food prices also rose with the halting of wheat exports from the Black Sea region, as Russia and Ukraine provide more than 30% of the world’s wheat needs, and the prices of corn and oils increased.
The head of the United Nations World Food Program, David Beasley, warned the Security Council that the war in Ukraine had created an “unprecedented crisis” of soaring food prices that had already sparked protests, riots and growing hunger that would add at least 47 million people to the 276 million “turning towards starvation” since before Russia invaded its smaller neighbour.
Lockdowns in China
For years, China has been a major factor behind global economic growth. But the ongoing strict lockdowns as a result of the “zero Covid” policy contribute to the exacerbation of the global inflation problem.
In a recent press release, Fitch Ratings warned that the coronavirus shutdowns in Shanghai and other Chinese cities would “exacerbate global supply chain pressures and inflation concerns,” noting a drop in freight traffic at the Shanghai port where it could not Workers load and unload ships at their usual pace.
Last month, Chad P. Bowen and Lin Wang of the Peterson Institute for International Economics noted that even before the Russian invasion of Ukraine, China had put pressure on global prices by imposing export restrictions on key international goods including fertilizer and steel.
China took these measures due to fears of rising prices at home. Bowen and Wang write that China has often been “choosing a policy that solves a domestic problem by passing on its cost to people elsewhere.”
Unpredictable weather events, such as droughts that damage crops and storms that upset trade routes, are increasingly seen as a major factor in the rising cost of living.
In India, the government was forced to ban wheat exports after the country was hit by a record heat wave that affected crops. Prime Minister Narendra Modi said his country, which produces nearly a third of the world’s wheat supply, had previously pledged to help “feed the world” amid the ongoing food crisis, but after temperatures rose unexpectedly due to global climate change, these exports were blocked. .
India is the latest country affected by severe weather that has destroyed crops. Brazil, another major food exporter, suffered a drought last year that hit its agricultural industry. The country’s inflation rate reached more than 12 percent in April.
Meanwhile, efforts to transition to a green economy are putting further pressure on the prices of commodities such as lithium in batteries and copper in wires and computer chips.
Many experts say this “green inflation” should be temporary and that the green economy will eventually be less vulnerable to energy shocks.
Inflation brings more inflation
Some economists believe that inflation itself can lead to more inflation, if companies anticipate it and raise prices in advance, which creates more inflation.
Inflation in one country can lead to inflation in another. Inflation in the US has pushed up the value of the dollar as investors anticipate higher interest rates.
At the same time, many countries have found their currency to be much less valuable than it was a year or two ago, driving up inflation. In Turkey, the value of imports increased significantly after the value of the lira fell.
Interest rate increases will also hit countries that are already heavily indebted, making it difficult for them to reduce inflation. The International Monetary Fund warned last month that countries in emerging markets that had already borrowed heavily to fund epidemic relief measures were at risk of a “doomsday cycle” that, at its worst, could lead to government defaults.