World inflation in times of pandemic | Pasqualina Curcio

It closed 2021 with prices inflated worldwide. Average inflation, according to data from the International Monetary Fund (IMF) published in the recent Global Forecasts and Policies report, was 3,6%, that is, 86% higher than in 2020, the year in which there was a variation of 1,9, 2018% of the prices in the world. In 2,16 it had been 9,3%. According to the same report, the region with the highest inflation was Latin America and the Caribbean (ALyC), 2021% in 2020 (in 6,4 it was 2019% and in 7,7, 2021%). Regarding the so-called countries with advanced economies, inflation in 2,8 closed at 2020%, in 0,7 it was 2019% and in 1,4 it was XNUMX%.

Of all the “advanced economies”, the US is the country that registered the highest levels of inflation in 2021, 4,3%. In 2020 it had been 1,2% and in 2019 it was 2,4%. For its part, inflation in the countries that make up the so-called Euro Zone averaged 2,2% in 2021, while in 2020 it was 0,3% and in 2019 it was 1,2%, Germany being one of the countries with higher inflation in 2021 (2,9%) together with Estonia (3,8%) and Lithuania (3%).

For the most part and on average, all countries in the world registered higher levels of inflation in 2021 after the fact that in 2020, the first year of the pandemic, they had seen it decrease when compared to 2019. One of the exceptions was China, which registered a price variation of 1,1% in 2021, 2,4% in 2020 and 2,9% in 2019.

The largest price increases in 2021 were accompanied by a 5,9% increase in world production, which we contrasted with the 3,1% fall in 2020. In other words, while in 2020 we observed a decrease in gross domestic product (GDP) worldwide (-3,1%) with low inflation (1,9%), in 2021 there was a recovery in production (5,9%) with higher inflation (3,6%).

Causes of the increase in world inflation in 2021. There are two types of inflation according to their causes: 1) that of supply or costs and 2) that of demand. In the first case, prices increase when the aggregate supply of the economy decreases, which generally occurs due to external factors, whether these factors directly imply a forced reduction in supply or are associated with cost increases. of production generalized throughout the economy, translating, in turn, into a decrease in supply. That is why it is also known as “supply shock”. A natural catastrophe can force the closure of companies and businesses and with it a reduction in supply in that economy. A pandemic has the same effect, as does a war.

The increase in transport costs due, for example, to the increase in fuel prices (generally set in international hydrocarbon markets) directly affects production costs for all economies, reflected in a decrease in supply. . One of the determining factors of the global price increase in 2021 is the increase in the price of fuel. With respect to 2020, the variation in the price of oil worldwide has been 60% and natural gas 132%, which in turn has effects on the rest of the energies, which mainstream all production processes, impacting on the cost of production and transportation of all goods and services resulting in a supply shock, especially in those economies with intensive use of fossil fuels, the US tops the list.

The depreciation of the local currency has the same effect on prices, that is, it also leads to an increase in production costs through the purchasing power of parity and therefore in a decrease in supply in that economy. In Venezuela we have school in this matter: inflation in the last 8 years has been the consequence of a supply shock caused by the induced and manipulated depreciation of the bolivar, which has affected the production costs of all goods and services. It has been a main inflation and originally of supply.

Then there is inflation on the demand side. This occurs when aggregate demand increases given a level of supply. The components of aggregate demand of any economy are: household consumption, government spending, public and / or private investment, net exports (after subtracting imports). Each time any of these components increases, it will be reflected in price increases. Thus, for example, if a country increases exports because the international price of the goods it exports increased, then demand will increase and with it prices. It happens in our countries of America when the price of commodities increases, oil is a good example. The fact that ALyC is the region with the highest levels of inflation in 2021 is largely explained by the increase in the international price of hydrocarbons and minerals in general.

Demand in an economy also increases when household consumption increases. Here you have to do an analysis related to the pandemic. During 2020, household consumption decreased for several reasons, including confinement itself and the propensity to save (of those who could do it) due to the uncertainty of what would happen with the coronavirus.

This explains the lower variation in prices in 2020. Once health policies were relaxed, repressed and depressed consumption in 2020 began to increase in 2021, explaining the increase in aggregate demand and with it the pressures on prices in the economies.

In summary and in general terms, world inflation in 2021 is mainly due to the supply shock due to the increase in production costs associated with higher fuel and transportation prices. Possible depreciations of local currencies have also influenced prices. These effects have been boosted by the demand side due to the increase in household consumption due to the decrease in preventive saving evidenced in 2020, and in particular, in Our America we must add the increase in exports through the increase in prices of commodities, mainly oil and gas.

It is interesting to read the IMF report in which, nowhere do they attribute the increase in world inflation to the issuance of money. They have no way of arguing it. In fact and according to its own data, the little machine worked with more intensity in 2020 than in 2021 and yet, during that year the price variations were smaller. For example, according to data from the Federal Reserve, in the US the amount of money (M2) increased 25% in 2020 and inflation was 1,2%; in 2021 monetary liquidity increased 11% and inflation was 4,3%.

World inflation in 2022. For 2022, the aforementioned monetarist body estimates lower levels of inflation worldwide: 2,3% in advanced economies; 3,5% in the US; 1,7% in the Euro Zone; 7,8% in Our America. In any case, more or less high, whether in demand or supply, inflation always affects the working class, especially when wages do not adjust in the same proportion and speed as prices, resulting in higher profits for the bourgeoisie, this being one of the causes of inequality and poverty in the world.

 

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