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Should we really be worried about inflation? | Daily Express Online


Should we really be worried about inflation?

Posted on: Saturday, November 27, 2021

By: AFP

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Consumers have to pay more for food.

PARIS: Whether it’s the heating bill, the prices at the pump or the weekly grocery shopping trip, consumers have to dig deeper and deeper into family budgets. Inflation makes it difficult for individual consumers to recover from the pandemic and puts the recovery of the global economy at risk.
What does the data say?

Inflation figures have been rising for months. In the United States, government data released this week showed that consumer prices rose 5% on an annual basis in October, the highest since 1990. In the euro area, consumer prices rose by 4.1%, the highest in 13 years. In Britain the increase was 4.2 percent. In all three countries, inflation is more than double the targets set by their central banks. Elsewhere, inflation is also intensifying. In Russia it is 8.1 percent, in Brazil it is almost 11 percent and in Turkey it is almost 20 percent. Behind these abstract numbers lies the concrete reality of skyrocketing gasoline tank filling costs, higher prices for meat and other staple foods. In the United States, many food companies reduce the size of packages to avoid increasing prices, a practice called shrinkage. Restaurant owners have told AFP that they have started removing products that have become too expensive, such as bottled water or crab cakes, from their menus.
Why are the prices going up?
After stagnating in 2020, the engine of the global economy is choking this year. This rebound, along with the shift in consumption of services to goods by households, signifies a boom in demand that has outstripped supply, which in some cases is still hampered by the pandemic. This has pushed up the prices of many raw materials, primarily crude oil, but also copper and timber. Some manufacturing sectors have been affected by a shortage of semiconductors or computer chips, particularly the automotive and mobile phone industries.

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Global transport networks have also grown. Some ports have become clogged due to a lack of workers to unload cargo while in Britain there is a dire shortage of truck drivers. Freight prices have skyrocketed.
Transient, really?
The central bankers’ refrain on inflation has not changed: it is transitory because it results from the low point of comparison of last year and is the source of short-term supply problems that will be resolved by themselves. The argument started to fade over the months. “It is now clear that this process will take longer than originally anticipated, and the inflation overrun will likely get worse before it gets better,” analysts at investment bank Goldman Sachs said in a note. to customers. They think inflation won’t start to fall until the middle of next year. A sign of growing concern is that Google searches for the word “inflation” have reached their highest levels in the United States and Europe since tracking began in 2004. This is one of the worries of bankers. central: a lingering sense of inflation from widespread demands for wage increases that companies must pass off as higher prices, thus triggering a vicious spiral of wage and price increases. In the United States, the situation is complicated by the fact that there is in fact a shortage of workers in many industries, with many companies raising wages to secure staff and passing the higher costs on to customers.

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Companies “are expected to increase the price of scarce labor in the future,” said Jacob Kirkegaard, senior researcher at the Peterson Institute for International Economics in Washington.
Why is it a minefield?
Usually, central banks would raise interest rates to curb price increases. But since the global economy is still suffering from the pandemic, and there are signs that the ongoing recovery is already weakening, policymakers are worried about the risk of killing it. Several central banks have nevertheless already raised their rates due to inflationary pressures, notably in Mexico, Brazil and Russia. US Federal Reserve Chief Jerome Powell said earlier this week, when he was reappointed, that we would act to “prevent higher inflation from taking hold.”
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