What are the Causes of Present Inflation?

23 December 2021

According to a study done by Dennis Bonam,  a Scientist from Netherland,   there was never a case of inflation caused by any kind of Pandemic for the past 700 years since the year 1313.  Most past pandemics always occurred just after the rise of the inflation hike as shown red in the attached map

In the attempt to explain the present inflation which occurred recently,   the Scientist said the present inflation could have been caused by the changes in the fiscal and monetary policies implemented by various countries to prop up their economies.  

Where are the Evidences?

The following chart clearly shows that the Netherland Scientist is not wrong because the monetary policy in the US has made an obvious  "jump" in the US's M2 money supply.  This money that has flowed into the community is suspected to have caused the present inflation in the US and to some extent, the EU areas.  

What are the Areas causing the inflation?

The Analysts in Investopedia have singled out 2 areas i.e Energy & Food.  Investopedia said the US motorists are paying 6.1% more at the gas pump in October and fuel oil prices soaring 12.3%.  The energy rise could drive up transport costs and this would in terms cause the food price to go up in the US.   

But the EU people are not as lucky,  their natural price rose 5 times in the last 6 months as shown in the following chart.  

This rise in natural gas has caused their electricity price to go at about the same proportion because most of their power generation uses natural gas.   The Asian regions are not spared.  This is because the Asians are getting the natural supply from the same sources as the Europeans.

One can therefore say that the inflation in the US might be "sparked" by the pandemic but one cannot say exactly the same for the EU and the Asian regions.  The monetary tapering and interest rate cutting might have a lesser effect on them.

What causes the Natural Gas to surge? 

Russia, one of Europe's biggest natural gas providers, has been accused of intentionally withholding supplies. But President Putin of Russia has denied Russia being the cause.  He blamed the European countries for not doing their homework to increase their storage capacity. 

So far,  no one has discussed China being responsible although China has banned the import of Australian coal in October 2020.  They are now drawing much more natural gas supply from Russian and the US.  Today, they are the largest importer of natural gas in the World.  

This article has deliberated quite a lot about how and who could be responsible for the demand and supply problem in the European areas.

In Conclusion

The present pandemic could have "sparked" the inflation in the US causing the energy and food prices to rise;  however,  one could not say the same for the cause of inflation in the EU and Asian regions.  It is envisaged that this inflation problem happening in EU and Asian regions will not be get resolved unless some countries like China can reduce their demands or Russia and the US can increase the supply of natural gas.