Why are things getting more expensive around the world?
From property to cars to petrol to the price of your morning coffee, prices are going up. Why are we seeing global inflation in all sectors?
Many factors are contributing to inflation, but three fundamentals are at work:
- A supply shortage. From COVID related transport problems to multiple productions problems, the world is short on the raw materials that make up many of our consumer products. In addition, we have a labour shortage in many parts of the world resulting from a reduction in travel.
- Increased demand – It costs almost nothing to borrow money. The world has never seen interest rates this low for this long. It’s an experiment seeing both business and consumers spending more and more money that they don’t have on property, transport and retail. As per point 1, the combination of low supply and high demand is the perfect storm for price inflation.
- Printing money – Governments around the world have been in one way or another increasing the supply of money or (borrowing money from themselves) to pay for COVID debt. Printing money has the same effect as a supply shortage. When we inject money into the economy without an increase in production, the value drops. $10 is now worth $9 and so on. If we are not careful, hyperinflation may take hold. A loaf of bread could cost you your monthly paycheck.