Inflation expectationsOne of the major influences of inflation is expectations. If workers expect prices to rise, they demand higher pay, and their employers must raise prices to cover this cost. However, since the Eurozone Crisis, the largest economies in Europe have struggled against expectations of deflation. A similar situation can be observed in Japan, with both fiscal and monetary policy unable to keep inflation above one percent.
Ways of measuring inflationInflation in often measured by the consumer price index (CPI), often reported without food and fuel prices. This represents a measure of costs that consumers face, calculated to represent how much changing prices affects consumers. However, those more interested in business look to the producer price index (PPI) or others, which represent the costs to firms and may influence financial markets differently. Because each sector experiences inflation in a different way, many analysts also look at the CPI in their selected industries. Similarly, different people have different economic interests. Older generations, more interested in the changing price level due to their tendency to live on a fixed pension, consider inflation to be a greater concern than younger people.
Coronavirus and inflationThe fourth wave of the Coronavirus pandemic is accompanied by high inflation levels. In the United States, the inflation rate has rocketed from 1.4 percent in January 2021 to 7.5 percent in 2022. With noticeably higher prices of basic goods, many housholds worry about the possibility of covering larger montly costs with the same income.
The crude oil prices have also reached unreasonable levels, mainly due to the outbreak of Russian invasion in Ukraine in February 2022. Higher fuel costs will probably lead to manufacturers increasing their prices furthermore. All of these facts lead to a conclusion, that it is rather unlikely to see the inflation pressures ease in 2022.