Ever felt that a packet of Lays got over too fast? Well, it’s not because you started eating fast, but because of inflation which is quite literally eating a part of your Lays.
Inflation has been increasing rampantly all over the world after the outbreak of the pandemic. The reason? Well, there are multiple reasons for it, and we will try to analyze most of them today.
First off, what does inflation mean? In economic terms, it is a general increase in prices and a fall in the purchasing value of money (The Lays example wherein the quantity is decreasing for the same price that you pay over the years). With a clear picture of inflation, we now talk about the causes and repercussions that led to inflation at an all-time high.
The Rise in Oil Prices
The oil barrel rates worldwide have reached humongous heights, with Brent Crude whopping to $81 per barrel. This phenomenal rise has been because of the Global Energy Crisis, the Power Shortage in China (Due to the shortage of coal), and the recent announcement by OPEC+ (Organization of the Petroleum Exporting Countries). What is it? Let’s find out!
As one article quotes,
OPEC+, which groups the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, has faced pressure from some countries to add back more barrels to the market as demand has recovered faster than expected in some parts of the world.
OPEC+ officials also said that the producers were considering boosting output by more than had already been agreed. (The initially agreed output was 400,000 barrels per day against the current supply of 500,000 barrels per day). In a meeting on October 4, OPEC officials decided to boost the output to the initially agreed production of 400,000 barrels per day, raising the crude oil prices.
But how on earth are oil prices and inflation-related? Here’s the answer
It’s not just passengers who are using cars and scooters. High petrol and diesel prices also impact the cost of manufacturing, transportation, and other aspects. Bringing down prices of petrol and diesel is essential because they affect inflation through the cost of transportation. But this is not all; there are other causes too.
The Supply Chain
Supply Chain disruptions broadly include the affected shipping costs and problems associated with them. China’s one of the biggest ports- Yantian Port, was temporarily closed after the province recorded cases of Delta variant. Though the closure was temporary, repercussions in shipping are long-lasting.
The shipping backlogs take time to heal and are very different from the typical supply chain that happens over the road.
Before the pandemic, the trade war sparked a shift in production out of China into countries in Southeast Asia such as Vietnam, a “nascent evolution of the supply chain” that suddenly was strained as factories shut down due to COVID-19. Making matters worse, China, “the manufacturing heartland of the planet,” has recently cut power for many industrial users amid rising energy costs and a move away from coal to cut carbon emissions, he said.
Pumping liquid money into the economy
The most prominent way to revive the economy is to pump liquid money, and most of the governments have done this amid the pandemic. The U.S. government has pumped about USD 2.1 trillion into the economy, almost the size of Indian GDP. While the economy’s growth prospects cannot be ignored, a rise in inflation rates will worsen things for the public in general.
Bottom line?
The increase in oil prices is one of the significant factors that threaten rising inflation over the world. But an accumulation of other factors is adding to the vows.
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Interesting Facts about Inflation
- Federal Reserve Chairman Jerome Powell’s description of a surge in U.S. inflation as “transitory” has become something of a running joke on Wall Street for its vague meaning.
- Consumer price inflation was running at a 5.3% annual rate in August, well above the Fed’s (The RBI of U.S.) target of 2% inflation as measured by the personal consumption expenditure index, which the Fed prefers.
- Goldman Sachs estimates that around 650,000 barrels of oil would be needed every day to meet the power demands.
- The gas prices have soared as much as 300% in Europe, due to which people are switching to oil, thereby increasing the demand and hence prices.
- Petrol prices in India soar. Delhi’s price- 102 and Meumbai’s price- 108
Global News from all around the World
- Zuckerberg lost 6 Billion Dollars after the global outage, which lasted for about 6 hours.
- Air India goes home! The TATAs have emerged as the winners in the bidding for Air India.
- Shares of China Evergrande are suspended on the Hong Kong stock exchange.
- Byju’s is not stopping. It is now valued at 18 Billion Dollars after a 300 Million funding.
- Sensex and Nifty show a rise after four days!
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