Categories: Business

Is Inflation Our Real Enemy?

As inflation goes up, many people around the world are worried about a cost of living crisis. The consumer price index (CPI) went up by 8.3% in April, and inflation in the US has remained at a 40-year peak.

Since the COVID-19 pandemic, food and energy prices have gone up, and the Russian invasion of Ukraine has made things worse.

The monthly food price index from the UN’s Food and Agriculture Organization (FAO), which tracks the prices of food commodities traded around the world, showed a 12.6% increase between February and March. This was the highest level since the index started being tracked in 1990.

Even more, the FAO’s cereal price index went up by 17.9% over the same time period. This was due to a rise in the prices of wheat and coarse grains around the world, which was mostly caused by difficulties with exports from Ukraine, which is one of the largest wheat exporters in the world. Additionally, oil prices, which were already high because of pent-up consumer demand after COVID, have gone up to more than $110 a barrel, and many Western countries have put catastrophic sanctions on Russia as a result.

IMAGE: UNSPLASH

Main Causes of Inflation Today

The concept of inflation dates back far further in time. It was originally used in the United States between the years 1830 and 1860, during a period in which the value of the US dollar began to decline.

In a nutshell, consumers encounter inflation in the form of persistent price rises. As time goes on, the value of one unit of currency may purchase a decreasing quantity of goods and services due to inflation.

Here are some more compelling reasons for the global inflation we experience today:

Rising Cost Of Labor

Jayson Lusk, the head of agricultural economics at Purdue University and a professor of agricultural economics, said that a lot of the rising cost of labour can be attributed to the large number of people leaving their jobs, especially in low-paying fields.

As an example of fast wage growth in the food industry, Lusk pointed to the fact that the wages paid to meat processors have gone up by 8.3% between the third quarter of 2020 and the third quarter of 2021.

BLS data has indicated that employment costs in the U.S. have gone up, and they are now much higher than they were before the pandemic. Economists thought that the end of the pandemic and the loosening of restrictions from the COVID era would make more people want to go back to work. However, this is occurring at a slower rate than expected.

The Energy Crisis

After the manufacturing of products, these goods will need to be moved. Rising, global fuel costs have made it nearly impossible for companies not to add this as a consideration. Delivering goods and services will cost more, now than ever before.

Just to give you an overview of the numbers:

The average price of a gallon of gas in the U.S. is around $4.10, and the price of crude oil, which can affect how much you pay at the pump, has risen above $100 per barrel several times in the past few months.

In March, the average price of Brent crude was $117 per barrel, which was $20 more than in February. In its most recent outlook, the U.S. Energy Information Administration also said Russia’s invasion of Ukraine, which has upset markets all over the world, was to blame for the rise.

Why Is Inflation Considered To Be Enemy Number One?

In essence, inflation reduces the value of money and this, in turn, contributes to negative buying behavior, which affects the average low- and middle-income households, who have proven to be more vulnerable to global inflation than high-income households.

For example, If a household’s fixed income does not increase as much as the current prices, the household is considered to be worse off, since this means that they will be buying less. Once an individual’s income goes up, their standard of living usually does too, and vice versa. In the current economic climate, there has been a significant decrease in household purchasing power. Of course, in reality, prices change at different rates.

Some, like the prices of goods that are bought and sold, change every day, while others, like wages set by contracts, take longer to change (in economic terms, they are “sticky”). In an inflationary economy, when prices rise unevenly, some people’s ability to buy things will always go down. Over time, inflation can also change the buying power of people who get and pay fixed interest rates. Consider the elderly, who receive a pension. They get a fixed 5% increase in their pension every year. If inflation is more than 5%, a pensioner’s ability to buy things goes down.

The loss of real income is inflation’s implication and our biggest enemy.

Can Cryptocurrency Investment Be Considered As A Hedge Against Inflation?

The economics of the cryptocurrency market is rather complicated, however, Bitcoin among other cryptocurrencies has been designed to resist inflation, or rather these cryptocurrencies may experience a predictable and lower inflation rate.

This is attributed to the fact that Bitcoin and other cryptos are decentralized and therefore cannot be shut down or influenced by central banks or governments, who are in fact, considered to be the largest borrowers in the world, according to the World Bank Group. Another important factor to consider is that cryptocurrencies are often limited because of their complex design and cannot be printed, unlike the Federal Reserve or a central bank that can print as many notes as required.

In essence, the argument is that cryptocurrency operates in an entirely different economy than central banks or governmental departments.

More and more people are opting to go the decentralized route, which means that they are now investing in cryptocurrency or planning on making such investments in the future. Potential cryptocurrency investors make use of certain tools like Bitcoin Method, which act as their bankers. These tools are fully automated and able to trade on the user’s behalf, requiring no experience or special skills.