Inflation hits the countries of the world…and fears of collapse

Inflation hits the countries of the world…and fears of collapse
Inflation hits the countries of the world…and fears of collapse

The global economy has been affected by the outbreak of the new Corona virus, and for the second year in a row, the global economy is trying to recover from the catastrophic repercussions, amid fears of a continuing setback in the economy.

Suppliers are still far from keeping pace with rising demand for goods, as ships queue outside US ports, waiting to unload goods as global oil prices rise more than 80 percent per barrel, the highest in years, resulting in more inflation than expected.

This comes at a time when the International Monetary and Financial Committee of the International Monetary Fund, composed of 24 finance ministers and central bank governors from member countries of the Fund, urged, last Thursday, central banks to monitor inflation closely.

Inflation fears are fueling strong demand, choking supply chains, soaring energy and commodity prices, and bad weather.

The Wall Street Journal says that restrictions imposed to curb the spread of the Covid-19 epidemic have led to the closure of manufacturing and trade routes, while suppliers facing a shortage of workers and truck drivers have been unable to keep up with the sudden rise in demand for goods, as economies begin to reopen after the crisis. COVID-19, which has led to an increase in the prices of energy and raw materials.

Sharp price hikes that many countries have not seen in years have triggered various reactions from central banks, with more than a dozen banks raising interest rates.

Central banks’ divergent responses reflect differences in views on whether higher prices will increase the risk of inflation.

The right view on this, says the Wall Street Journal, “will shape the course of the global economy over the next few years.”

Large central banks depend on household consumption and expect that there will be enough underutilized workers to control rising wages, which may contribute to easing inflation.

But other monetary authorities are not so sure, and say there is a greater risk of higher wages. In poorer countries, the largest share of spending usually also goes to necessities such as food and energy that have seen the most price hikes, so policymakers, not households or workers, are quicker to rein in inflation.

Last Wednesday, Chile’s central bank raised the interest rate by one and a quarter percentage point to 2.75 percent, surprising economists with the largest rate increase in 20 years.

Sandra Valenzuela, 46, in Santiago, who lost her sales job last year and is now struggling to find enough food at home, says: “It affected us a lot, the price of everything went up. We have to adapt to the economy.”

In the world’s largest economy, US President Joe Biden announced, last Wednesday, an initiative to ease the backlog by pushing for the provision of continuous service throughout the day at ports and suppliers.

World Bank President David Malpass had warned that the rise in some prices “will not be temporary,” adding, “It will take time and cooperation from policy makers around the world to sort them out.”

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