Economists know that after a sharp drop in demand levels that these large amounts of declining demand are only caused by wars or global epidemics, inflation is the indicator size that will rise after the end of the problem due to declining demand. drastically reducing any disposable income of consumers-citizens. This is due to four main factors:
1. During the imposed financial lockdowns / shutdowns the citizens increased their savings when at the same time they could not spend the money they usually spent before a pandemic. Given this fact, demand levels for certain goods and services are expected to increase significantly. But increased demand levels at certain lower levels – due to a pandemic – supply levels will lead to higher prices and inflation (please read the analysis entitled “Food Prices are Constantly Rising“).
by Thanos S. Chonthrogiannis
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2. Many businesses due to reduced demand levels during lockdowns suspended or greatly reduced their production levels in their products produced and offered. With the opening of the economy all these companies need time to bring their production back to pre-pandemic levels.
On the other hand, many raw materials come from within the EU, and it will take time for the international supply chain / trade to return to pre-pandemic levels. This means a limited supply of products and services at extremely high levels of demand that will increase product prices.
3. Raw material prices are increased during 2021.
4. International transport costs are increased dramatically in 2021 (please read the analysis with titled “Six Times Increased Marine Transport Costs“) due to supply chain constraints, further boosting consumer prices.
The US inflation rate is higher than 5% per year, which is an incredibly significant issue.
In the long run, many analysts expect a high correction of the high level of inflation, as all companies will enter the production process dynamically, gradually reaching pre-pandemic levels, and given the normalization of transport costs and the supply chain.
But this scenario is not highly likely, because as both global production and the supply chain are normalized, the consumer populations will increase given the growing share of consumption by a larger percentage of Asian countries (mainly China, India, Bangladesh, Philippines, Thailand, etc.), maintaining high world inflation level.