From appliance stores throughout the United States to food markets in Hungary and gas stations in Poland, rising prices for consumers caused by increasing energy costs and disruptions to supply chains put a strain on businesses and households across the globe.
The rising cost of living is causing price increases for gas, food, and other items, making it difficult for many consumers to choose between deepening their pockets and tightening their wallets. In emerging economies, the situation is particularly dire.
Nearly two years have passed since the economic effects of the COVID-19 pandemic swept the globe. The impact continues to be felt, even after countries escaped crippling lockdowns and consumer demand increased. Another surge of illnesses due to a new coronavirus variant called omicron is causing nations to tighten their borders and put other restrictions in place to risk global economic recovery.
Omicron has caused new concerns that ports, factories, and freight yards may be forced to shut down temporarily, placing more stress on global commerce and pushing prices even higher.
“A new round of infections could further aggravate supply chains, putting even more upward pressure on inflation,” said Rubeela Farooqi, who is the chief U.S. economist at High-Frequency Economics.
The economic effects are trickling down especially hard throughout Central and Eastern Europe. These countries have among the highest inflation rates of the 27 nations in the European Union, and people are having difficulty buying food items or filling up their tanks with fuel.
The recent increase in inflation has taken economists and business leaders across the world by surprise.
In the spring of 2020, coronavirus devastated the world economy. The government forced businesses to shut down or reduce operations, while families were forced to stay at home. Companies prepared in case of a catastrophe, rescinding orders and delaying investments.
To prevent economic collapse, rich countries, particularly the United States — introduced trillions of dollars in aid from the government and economic mobilization of a magnitude not seen since World War II. Central banks also cut interest rates to boost economic activity.
However, the efforts to boost economies have led to unintended outcomes. Consumers were confident by the influx of cash they received from government aid or low-interest loans, while vaccinations increased the number of consumers visiting bars, restaurants, and even shops. The increase in demand puts a strain on suppliers and their ability to meet the needs of their consumers.
Ports and freight yards became quickly flooded with goods, and prices started to increase as supply chains became overwhelmed, notably when new COVID-19 outbreaks frequently closed ports and factories in Asia.
The rise in prices has been dramatic. The International Monetary Fund predicts that global consumer prices will rise 4.3% this year, the most significant increase since 2011.
It is most evident in emerging economies such as Central and Eastern Europe, with the highest rates of inflation recorded in Lithuania (8.2%), Estonia (6.8%), and Hungary (6.6%). In Poland, one of the fastest-growing economies in Europe, the inflation rate was 6.4% in October, which is the highest rate recorded in the past two decades.
The weakness of the currencies in Central and Eastern Europe against the euro and U.S. dollar can cause the cost of fuel and imports to increase and trigger more pain from supply shortages and other factors. However, prices for imports have increased dramatically, and the global oil price based on the U.S. dollar has pushed prices for fuel to record highs.