Why is Inflation Getting High? Will it Stay That Way?

Why is Inflation Getting High?

Inflation is getting high with food and energy prices are hitting record highs. The increase has been driven in large part  by the pent-up consumer demand after the pandemic. In addition, the world has experienced unexpected war which contributed to the inflation. UBS chief economist Paul Donovan explains why inflation is so high and when to expect it to ease.

April saw a CPI (Consumer Price Index) an increase of 8.3%, while US inflation has stayed at a 40-year high. As a result, a prospect of a cost of living crisis is looming across the world.

Driven by food and energy costs surge in the wake of the pandemic, inflation exacerbated due the unstable political situation in the world.

The UN’s Food and Agriculture (FAO) which tracks prices of globally traded commodities, reported an increase of 12.6% between February and March to reach its highest level since its inception in 1990.

Why Inflation is So High Today?

The surge in inflation today is historical as explained by Donovan. However, it won’t last at these levels for much longer. It has been provoked by the significant demand for goods in 2021. The countries emerged from lockdowns, shops opened and people have savings during the economic inactivity to buy stuff.

It’s not just that you’re seeing prices go up because supply today is constrained. Prices are also going up over concerns the war will disrupt future supply.

—Paul Donovan, Chief Economist, UBS

Demand and Supply and the Effect on Inflation Rising High

Recently, there was significate surge in demand for goods following the lockdowns. However, there was also a surge in supply of goods, this should push off inflation. Nevertheless, what happened is that the demand overwhelmed the supply which pushes up prices and created shortages. Now that has faded as the savings of consumers in many countries have disappeared, so the demand has come down.

What Cause Inflation

  1. Production Cost

    Due to increase in raw material or labor wages, the production cost of a product increases. This increase is passed on to the consumer in the form of higher prices of the finished products.  an example is when the oil price increases, most of commodities prices increase as well. That’s because transportation fares increase.

  2. Demand

    When the demand of a particular product or service increases, there will be fewer of such products available. This will result in price increase of these products.

  3. Fiscal Policy

    Expansionary policy by central banks can lower interest rates. This leads to the ease of loans that banks can lend to companies and people. This leads to more spending and high demand of products.


Inflation is the measure of the rate of rising prices. It can occur when prices rise due to increases in production costs such as labor wages and raw material. Also, a surge in demand can cause inflation as consumers are willing to pay more to buy products. Inflation today is driven by demand increase of goods after lockdowns. Then, it is exacerbated by the unstable political situation in the world which raised the production cost.

Also read: Kuwait braces for inflation pressure – Rate seen at 5.5%

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