The article is about the inflation surge and its subsequent problems in different economies around the world during the post-covid-19 era.

Inflation rate is typically estimated using the inflation rate equation: (B - A)/A * 100, where A is the starting number and B is the ending number. The formula requires the starting point (a specific year or month in the past) in the consumer price index (CPI) for a specific good or service, and the current recording for the same good or service in the CPI. After subtraction, we find the difference between the two numbers.

One of the examples in the article is Turkey. According to the Turkish official statistics agency, Turkey’s annual inflation rose to 19.58% in September, which reached its highest level in two and a half years. The president has therefore demanded to lower the interest rate in order to encourage economic growth. As the interest rate decreases, more people are able to borrow more money, which means consumers having more money to spend. This causes the increase of consumption and investment in the economy. However, this plan from the government raised concerns among investors since they worried about the increase of inflationary pressures due to the rate cuts. The investors’ reaction refers to the inverse correlation between interest rates and inflation. If the demand in the market grows too quickly, the goods will begin increasing their prices higher and higher, leading to the inflation, which means that the value of cash falls down.

Another factor that worsens the inflation is the imbalance in supply and demand. The rebound in consumer demand has come much faster and much more strongly than usual in the aftermath of an economic contraction. However, the supply has struggled to meet that demand since manufacturers lowered their capacity during the pandemic, and also many parts of the global transport network have been inhibited by restrictions on work and movement from the government. In the supply-demand diagram, when demand is larger than supply in the market, the price will increase automatically to meet the equilibrium (the point that supply equals to demand). Applying this to this scenario, with drawn-out recovery in supply chain, the increasing price aggravated the problem in inflation. Central bankers from G20 expect that those forces of supply and demand will balance out over coming months, and will therefore ease the inflation rates.

Link: https://www.wsj.com/articles/inflation-sets-off-alarms-around-the-world-11634304187