Inflation is rising at an exponential rate across the world, and a potential cost-of-living crisis is looming for many, not only in the poorer countries but also in the affluent ones as well. Everyone across the board is feeling the pinch, to say the least.
In economic terms, inflation is the rate at which prices for goods and services rise in a given country. It dramatically affects the cost of living, as a surge in inflation decreases people’s purchasing power.
The cause of the present surge in inflation is twofold: first, the Covid-19 pandemic and second, the war in Ukraine. Commodity prices collapsed with the arrival of Covid-19, but after it abated somewhat, the demand for goods outstripped supply and consequently raised prices. That in itself was enough to cause inflation to go up.
Right on the tail of Covid-19, and without giving the world a respite or a chance to overcome the already existing hurdle, the Russian invasion of Ukraine followed, causing further substantial threats to the global food supply.
Let’s delve into the situation further.
Today, both crises are stoking a global food dilemma. Month after month, food prices are skyrocketing. The UN Food and Agriculture Organisation (FAO) reports that between February and March this year an increase of 12.6 per cent in prices occurred, their highest level since the 1990s and a 33 per cent increase compared to March 2021.
The war in Ukraine has caused shortages of grains such as wheat and corn, since the country is considered to be the breadbasket of Europe, and, subsequently, of the world. Many Ukrainian grains are also produced in the southeast of the country where the heaviest shelling and attacks have occurred.
Ukraine is the world’s leading exporter of sunflower oil and vegetable oils in general. The war has helped to drive a 23 per cent increase in the FAO’s Vegetable Oil Index.
Belarus, lying between Russia and Ukraine, and Russia itself provide about 40 per cent of the world’s exports of potash, used in fertilisers, so the sanctions on Russia have worsened an existing fertiliser shortage. This will drive farmers to reduce fertiliser use and hence reduce crop yields.
Most Ukrainian transport facilities and routes are inoperable. The power grid needed to prevent stored crops from spoiling has been destroyed; routes to the Black Sea ports where grains are shipped are inaccessible; and the water alongside the ports is mined.
The result is that the current shortages will not ease, and the scarcity of grains, commodities, vegetable oils, and fertilisers will persist until the situation in Ukraine improves, in the meantime leaving the world in a crisis like no other.
Crude oil, too, has skyrocketed in price, inflating the prices of everything else while reducing economic growth everywhere. The price of crude oil affects production and the movement of products from one location to another.
In an attempt to tighten the noose around Russia, the EU and the US have banned imports of Russian crude oil coming in by sea. This cuts into Russia’s profits but also chokes economies across the world, in particular in Europe.
According to GlobalPetrolPrices.com, an energy data-tracking company, the average price of petrol around the world is currently $1.43 per litre, which is indicative of the surge in prices.
Hong Kong consumers pay almost $3.00 a litre. American consumers are dealing with the highest prices ever seen. Residents of Finland, Denmark, Greece, Israel, Italy, and many other countries are all paying over $2.00 a litre. In Canada, an average of $1.2 a litre was the norm; now it has almost doubled to $2.35.
Obviously, these soaring prices are affecting individuals. Even in the most affluent countries, higher prices are burdening consumers, leaving many who are living pay-cheque to pay-cheque with budgets that are stretched to the limit.
A BBC article, “Cost of Living: How will we Afford Anything with Bills this High?,” talks of how families in the UK are having to face the choice between heating or eating due to spiralling energy costs.
Some families are cutting back on basics and meals, while others have to go to food-surplus projects that redistribute food that supermarkets can no longer sell on a “pay-as-you-feel” basis. The article describes “families living in just one room to keep warm, people turning off their fridges to save money, and others relying on hot water bottles instead of heating, due to fears about mounting bills.”
Not surprisingly, Americans are paying $350 more at the supermarket than they did in June 2021. The US news channel CBS talks of how school-lunch programmes in the US are feeling the “pinch of rising food prices, shortages, and supply chain issues.” In Canada, the Montreal Gazette talks of cutbacks as people struggle with hefty prices and how many are having to become frugal to make ends meet.
The latter is becoming a driving force. And as more and more people opt not to go out, dine out, go to a cinema, or buy a new gadget, the economy starts to slow down even further.
Inflation and soaring prices in the wake of the Ukraine war will be with us for some time. In order to help us deal with their serious repercussions, we have to realise that the whole world is suffering, too.
We are all in the same boat.
The writer is the author of Cairo Rewind on the First Two Years of Egypt’s Revolution, 2011-2013.
A version of this article appears in print in the 23 June, 2022 edition of Al-Ahram Weekly.