# Inflation Global Crisis in 2022 – Explained

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The global economy is currently undergoing one of the most severe waves of inflation recorded in recent history. In the United States alone, the consumer price index (CPI) rose by 8.3%, which was the highest since the 1980s. Given the interconnected nature of global industries, there hardly has been a region that did not see a hit as a result of the present economic circumstances. Standards of living across the globe have already begun seeing adverse impacts. This inflation is unique to the previous historical examples, given its largely universal and pervasive nature. Economies all across the globe are likely to feel the pinch. In this article, we attempt to arrive at the core of this global inflation crisis and understand the causes behind it. We also present several recommendations and guidelines that could prove useful to investors looking to safeguard their wealth in conditions of such macroeconomic stress.

## What is Inflation?

Before we proceed, we attempt to answer one basic question. What exactly is inflation?

Inflation is, at its core, a rather simple phenomenon to understand. It refers to a period where the economy sees a general increase in the prices of goods and services. When the prices of all things surge and income remain constant, the net result is a decrease in the purchasing power of market participants, and hence a devaluation of a currency over time. In simple terms, one unit of currency gets you fewer goods or services as a result of inflation, than it would in normal times.

The initial trigger behind the price increases typically relates to the forces of demand and supply, which impact all things in a trickle-down manner. For example, if the crude oil global supply sees disruption, oil producers worldwide would no longer be able to meet global demand, which will end up causing global inflation. For this mismatch to be corrected, producers raise oil prices accordingly. The more severely supplies are limited, the steeper the increase in prices.

Applying this concept to a more macroeconomic context leads to severe implications for individuals, households, and businesses. For one, there is a general decrease in the disposable incomes of households, which leads to less spending on luxury and non-essential items. This in turn impacts businesses and entire industries like a domino effect. To ensure survival these industries are forced to undertake cost-cutting measures and serious restructuring, such as downsizing, to match the reduced demand. Increased unemployment, high costs of living, and a general slowdown of commercial activity altogether are a recipe for panic. This is the current status of affairs, taking place at a global level in 2022 and thus becoming the reason for inflation globally.

## What is causing the present Global Inflation?

Now that we understand global inflation at a conceptual level, we attempt to contextualize the economic crisis presently impacting the world.

In the current times, prices of commodities are surging due to several variables that perfectly align to result in the worst inflationary period witnessed in recent history.

Many claim that the primary trigger for these conditions is the Russian invasion of Ukraine in early 2022. However, inflationary conditions go back to early 2021. Although Russia’s invasion has indeed resulted in a breakdown of some of the most critical supply networks of the global economy.

When the coronavirus ravaged the globe in 2020, most industries had been brought to their knees. With the imposition of city-wide lockdowns, businesses and industries took a serious hit. However, inflation did not immediately take off, given that the demand fell with people’s movements restricted in developed regions across the world. It was not until 2021 that the macroeconomy began to feel the shakes. With the easing of restrictions and mass vaccine distribution, life gradually began approaching normalcy. Once demand began seeing a surge, industries were poorly prepared to overcome disruptions, and perform at pre-pandemic level capacity. The disbalance caused a general price increase throughout global markets.

It was not until early 2022, however, that things went from bad to much worse. Tensions between the Russian Federation and Ukraine had already been flaring up for months. In March 2022, Russia initiated the invasion of Ukraine by conducting aerial strikes on its capital city of Kyiv. Four months on, and the crisis continues to drag on, with no end in sight. Ukraine, which produced 17% of the global corn crop, and 12% of the global wheat crop, saw its exports cease entirely. This had led to rocketing food prices throughout the global food markets. Moreover, these conditions were exacerbated by global sanctions on Russia, which impacted the supply of Brent crude oil, the price of which rose from $97 to almost$127 on the 8th of March, 2022.

In summary, surging post-Covid demand, coupled with global supply restrictions, are causing record-breaking levels of global inflation. Many point out that these conditions are likely to persist. This is due to the likelihood of sanctions on Russia remaining indefinite, even after the war’s end.

Economists further add that pessimism is playing quite a big role in these macroeconomic conditions. It is not just present supply, but the anticipation of future supply restrictions that are influencing pricing by producers. Therefore, stability could likely come about with some certainty about the future outlook and a clear way forward.

## How to Avoid Global Inflation?

Now that we’ve both explained and contextualized inflation in the present circumstances, we move on to offer some guidance about how to protect one’s self against the impacts of inflation.

Seasoned investors know that, although global inflation is an indicator of market distress, it is fully capable of being hedged through the right planning. Many investors also go a step forward and aim for significant gains within the prevalent circumstances.

Firstly, your best option to find protection against global inflation is by investing in the stock market, in general. Where goods and services prices climb, so do those of certain stocks – especially those likely to climb during inflation. Parking your funds in such a class of stocks would protect it from devaluation amidst wider stresses.

Moreover, investing in stocks holds a critical advantage that one does not find in the purchase of commodities such as gold. Most stocks pay a periodic dividend which can further assist shareholders’ purchasing power from shedding. Unlike the purchase of commodities, your stocks will be delivering you value in the form of liquid cash flow.

Property is typically a go-to investment option for quite a few, given its rising prices. It is also a conservative investor’s favorite due to its capability to deliver rental income. However, unlike stocks, real estate is an extremely illiquid asset. Stocks buy and sell instantaneously. However, the downside is their extreme volatility, which brings the need for caution.

Ideally, you’d be looking for stocks that soar during inflation, such as those which deal in commodities. Oil and gas companies, gold mine stocks, and food producers are all great options to consider. Higher commodity prices would typically mean higher profit margins. What better way to ride the global inflation wave upward, instead of sinking in your devaluing funds that sit idle?

## Conclusion

Global Inflation understandably rings alarm bells across the economy. Higher prices, reduced purchasing power, disrupted supply, and unemployment. These are some of the buzzwords defining present-day discourse. However, those that plan their financial decisions well can gain big even amidst these wider adversities. In order to have a thorough grasp of the present situation, it is critical to understand the core underlying factors.  These include the economic fallout of Covid-19 and the supply chain disruptions caused by Russia’s invasion of Ukraine.

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