Hearing or reading the word inflation practically every day has become a routine over the last year. And that routine is not exactly a positive thing, quite the opposite. The term is synonymous with concern and economic uncertainty. That there is inflation means that there has been a general increase in prices over a sustained period of time. As explained by the European Central Bank (ECB), this means that for each euro fewer goods and services can be purchased today than yesterday and, therefore, the value of the currency is gradually reduced.
The bad news is that inflation is skyrocketing in major economies around the world. Among them, Spain. In the specific case of our country, the Consumer Price Index (CPI), the indicator through which inflation is measured, reached its highest level since 1986 last February: 7.6% year-on-year . The figure is higher than the average for the European Union, a territory in which prices rose by 5.8%. In the United States, the increase in prices stood at 7.9% year-on-year, a figure not seen since 1982. Forty years. In the Federal Reserve of the United States (FED, for its acronym in English, Federal Reserve System), there are very veteran economists who had not known such a bump.
The main banks around the world already tried to curb the concern at the beginning of 2021. Their managers and expert external advisers assured then that the inflation problem would be temporary. However, the results of the first months of the year 2022 have shown that they were not right. Years of ultra-expansive monetary policies, record economic stimulus programs and a much stronger-than-expected post-Covid recovery fueled the current fever in the price system. Now the conflict in Ukraine has made things even worse. The energy impact and supply problems in some products are only the first dominoes, according to analysts.
The effects of the Ukrainian war
The consequences of the Russian invasion are not limited exclusively to Ukrainian territory, but are already being felt and will be felt throughout the world. Ukraine and Russia account for about a third of all world wheat exports, a fifth of international corn trade, and almost 80% of sunflower oil production.
In the case of Ukraine, the war has damaged plantations and key infrastructure, is reducing the available labor force and making planting and harvesting processes more difficult. On the other hand, international sanctions against Russia are making it difficult for this country to trade with the rest of the planet. This is what explains why many experts warn that the invasion could endanger between 10% and 50% of the world supply of some of the main agricultural products. A scenario of scarcity that, together with the increase in the price of fuel, can contribute to raising inflation even more.
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The current scenario puts a series of key questions on the table. How are central banks going to react to this unforeseen situation? What strategies are they considering? And the most important: how far can interest rates go? If you want to know the answer to all these questions, don’t miss the last video of if i had knownthe new financial information channel of Mutuactivos.