Making sense of inflation with math

According to economists, the world economy is facing its highest inflation rate in 40 years, with more than a 9% increase. It may drop to roughly 8% in the next few months.

Since May 2021, many central banks have raised interest rates by approximately 1.25 percent per month, posing a threat to their economies.

Many industrialized countries have historically implemented regulations to limit the impact, and while these policies can have a direct effect on cutting inflation, experts say the risks involved can add uncertainty to the broader economy.

Many poor and developing countries have historically experienced “demand-pull inflation,” which occurs when the economy’s demand for goods and services exceeds the economy’s ability to produce them.

The government can raise taxes, cut spending, and limit the money supply; however, not all analysts agree on how to deal with inflation.

Monetary policy: higher interest rates reduce demand, resulting in slower economic development and inflation. Because of its link to inflation, monetarists believe that reducing the money supply will lower inflation.

Supply-side efforts lower long-term costs by boosting economic competitiveness and efficiency.
Higher income taxes could reduce spending, demand, and inflation.
Several economists believe that controlling wages and prices can help to reduce inflation.

Regrettably, numerous impoverished and developing nations have limited options when it comes to witnessing a price drop. However, they can certainly inform you about the significantly lower costs that were previously present.

Nevertheless, I won’t burden you with an exhaustive list of factors contributing to inflation. In simple terms, increasing prices reduces people’s ability to buy, leading them to spend less and borrow less for investments such as property.

What is certain for people living in many poor and developing nations is that high costs for basic products and services, low wages, high employment, underemployment, and little pressure to hire new workers have long been problems.

The eternally hidden math that is rarely discussed:

For decades, the high cost of living has already resulted in tremendous inequality and an economic division between the haves and have-nots.

Inflation also increases the cost of acquiring personal loans, mortgages, and credit cards. This enhances the potential for lenders to achieve higher earnings. Rates on local savings accounts or Certificates of Deposit (CDs) can also increase savings accounts.

Experts have noted that saving rates in underprivileged and developing areas tend to be lower than the national average. Purchasing essential food items, especially when imported, can pose a significant challenge for many families.

Those at the bottom of the wage scale, as well as the middle class, are more likely to see their savings decrease.

The hidden numbers include local grocery stores, hardware stores, petrol stations, restaurants, and street vendors offering goods and services; their pricing might vary dramatically within a block of each other.

Furthermore, while costs for fuel, food, and utility services have stabilized or declined marginally, as inflationary rates have in other developed countries, the opposite is true here.

Filling a normal compact automobile with gas in the United States, for example, averaged $40.00 at the height of inflation, and filling a similar vehicle can cost around $US70.00 on these shores.

Another reason is price gouging, which occurs in several of these local communities with little to no control and only the wealthy profit.

Today, it seems that many expats and visitors are facing the consequences of people who chose not to take vacations or explore other investment options, similar to what happened during the height of the COVID-19 pandemic. 

Unfortunately, due to inflation and other socioeconomic issues, many expats are choosing to return to the countries they left because of unexpected financial burdens that exceed their initial budget.

Inflation is just a reflection of underlying socioeconomic conditions.

Consequently, impoverished and developing nations face a substantial shortage of essential skills in various sectors.

It can be challenging for diligent individuals to achieve homeownership and establish a foundation for future wealth. The housing market seems to heavily favor foreign investors, leaving teachers, nurses, police officers, and others unable to afford homes where they work.

Unfortunately, there is that elephant. Huge imports have driven numerous local farmers’ products out of their stores, forcing them to reduce output. Local farmers, moms, and corner stores can no longer compete with nicely packaged maize, tomatoes, pigs, poultry, potatoes, fish, apples, grapes, and bananas from China and elsewhere.

Straying far from traditional dishes and cultural practices has led to a significant increase in prices within the food distribution network. Is there any accountability, and, regrettably, it seems that inflation has become a convenient excuse for unsuccessful policies?

Beyond the Consumer Price Index (CPI)

Analysts believe the actual inflation rate is 8–9 percent. However, how many people have already fallen behind, not only because of increased prices, but also because of a lack of job opportunities for advancement?

Experts agree that the increased price pressure is progressively decreasing. Unfortunately, prices in these poor neighborhoods have steadily risen, even in times of deflation or any other economic condition.

Socioeconomic disparities have been associated with a supposedly high cost of living for decades.

Could you kindly elaborate on whom, what, when, how, and where you are referring to when you say things are returning to normal?

Many of these shores have already been affected by inflation long before it reaches Wall Street. Local customs fees at local ports, supply networks, and imports that were previously beneficial to local families from expats have experienced a significant increase in fees.

This has raised concerns among locals who are wondering who stands to benefit from these fees.

This practice may deter people from importing things for personal use from other countries. As a result, people are forced to pay significantly higher costs in the area, which has been a long-standing issue for many years. This behavior is known as “underground inflation.”

Over the last year, the cost of various beverages, burgers, and fries has more than doubled. McDonalds is seeing a drop in consumer demand, while Target and other businesses are rethinking their strategy because, despite the excessively high pricing, consumers still have some leverage.

Furthermore, analysts have highlighted the fact that the average client on whom they rely is turning away.

Home cooking offers the added benefit of helping you to save money while prioritizing your health. However, it can be difficult in today’s economy  for may people to find reasonable costs for food products and ingredients.

Numerous individuals expressed their dissatisfaction with the perceived decrease in native cuisine choices due to imports. As a result, individuals tend to consume processed foreign goods.

Not only does it put people’s health at risk, but it also excludes those who cannot afford these expensive new imported prestige packages.

People cannot help but feel the true numbers in their pockets. It’s like an endless game of financial roulette.

Economic inflation increases with a high CPI. Higher CPI and inflation mean consumers pay more for the same things.

The CPI calculation can provide insight into why things have become more expensive. While it serves as a guide for experts, it may not always reflect the actual situation for the general population.

In these less affluent and developing nations, the connection between the currency, inflation, and even the banking system in these regions is as complex as the political structure.

Sadly, regardless of the party in power, inflationary times have become a talking point for ineffective policies that continue to win local elections.

Today’s issue is not how much small neighborhood retailers can increase their prices while staying profitable, but who can afford to shop there to support them.

Yes, geopolitical concerns such as conflict, supply chain issues, and political turmoil play a role, but these communities must continue to suffer the persistently harsh seas with little or no reinforcement to survive the increasing price hurricanes.

When the industrialized world catches an economic cold, the rest of these shores will likely catch the flu and struggle to get medication.

If investors and politicians are bullish, who is bearish?

In reality, inflation has decreased and continues to decline in certain areas. It is crucial for local citizens to actively engage in democracy, regardless of political affiliation.

While your vote may not directly address the global issue of inflation, it is important to reflect on whether you are currently in a better position than before and how you envision the future.

Think about your safety, growing pricing, upward mobility, education system, and healthcare, to mention a few.

Inflation is only a minor component of these regions’ structural issues. I believe democracy ends at the ballot box. Poverty, inequality, unemployment, and weak governance persisted beyond the elections.

The inflation rate may fluctuate, but, as previously stated, if corruption, poor leadership, and authoritarian maneuvers are used solely to keep power, and only those connected to political leaders benefit, inflation is simply another hurdle.

Many argued that vital community needs are being ignored and that decisions taken by a few only appear to benefit them, yet you are the change one desires for better numbers, just like inflation.

According to studies, this form of oligarchy governance structure places these politicians and their close supporters among the wealthiest individuals in these communities. They have great effect even in the administration of justice.

Many retiring political figures departed government with considerable riches, but the issues they were elected to address, such as the high cost of living, crime, and poverty, continue.

However, let me return to my opinion on inflation.

“As inflation stabilizes, the stock market is ready for a strong rise,” Wharton professor Jeremy Siegel claims. Some countries are experiencing decreasing unemployment rates, but only with effective economic strategies.

Unfortunately, many of these poor communities’ accounts have alredy been depreciated, pushing them further behind.

The outlook depends on where you sit.

The quality of life for residents and expats who once relished their communities is now overshadowed by public safety concerns that seem to surpass inflation rates.

They must now be more protective of their belongings. Many studies have indicated that the crime rate is consistently greater than the inflation rate.

Ms. Jane, who has retired, has put the new building on hold since the cost of materials and labor has risen above what she had planned. The surrounding laborers or handymen who were required to complete her project must now wait.

Withdrawing her funds from some of these local banks is a challenging task in an inflationary economic crisis. The lines to even reach an ATM resembled those for an outdoor cultural event. Some have also reported that funds are missing from accounts, and without access to these local banks, it is impossible to create trust in the system.

Combined with her fear of becoming a target for crime, she also opted to leave town, causing many local businesses to suffer.

Despite some encouraging signs of slight economic progress, many people complain that they do not feel it.

Experts noted that inflation only exacerbates the situation in communities where unemployment and crime are already on the rise, as is the ever-widening gap between the haves and the have-nots.

A significant number of these countries have become members of the International Monetary Fund (IMF), an organization dedicated to promoting sustainable economic growth and prosperity for its 190 member states.

Today, many finance  leaders will be taking trips to attract investments, while some nations may face exploitation due to their poor governance. 

Undoubtedly, the IMF remains a crucial lifeline for these nations, as it offers vital support in managing employment, financial stability, and overall productivity. Experts have highlighted the fact that these nations heavily rely on the IMF as their sole source of finance for survival.

So the local question remains the same: “What inflation?”

The only response is that, as they frequently say, things have been this way for a long time.