Mr. Muhammad Habboosh Accounting & Finance
Is There a Relationship Between the End of Corona Pandemic and Inflation?
In 2020, the world went through the worst disease experience since the Spanish Flu. Coronavirus spread as no other virus did because of flights and tourism activities.
When the world shut down, people had to stay in their home countries, and in some cases, they had to lock themselves physically inside their homes. Companies lost their businesses and employees were released. In America alone, about 9.6 million U.S. workers lost their jobs between 2019 and late 2020 (Bennett, J. 2021), and about 6.5 % globally, reaching 220 million (United Nations Statistics Division, 2021). Let us start with America as its economy is the biggest and most effective. According to an investigation report released by CNN News, the US government has put about $4 trillion into the US economy since the pandemic started in March 2020, to stimulate different economic sectors, such as small businesses ($1 trillion), jobless employees ($567 billion), health care ($331 billion), state and city aid ($254 billion), schools and colleges ($231 billion), the airline industry ($73 billion), struggling renters and homeowners ($58 billion), child care ($56 billion), and nutrition assistance ($52 billion) (Lobosco & Luhby 2021). On top of all this spending, the government has issued a rescue plan to help people whose annual income is below $150, 000, by giving $1,400 stimulus checks, with a total amount of almost $2 trillion. (Konish, 2021).
The money spent here is a desperate attempt to overcome the devastating economic effect that happened during the big lockdown. However, the question is: Is this going to boost the economy back to normal? No one knows actually.
Another problem has arisen in China, the factory of the world. When the pandemic started, China stopped all factories from working and postponed exporting to the rest of the world as a way to quarantine the country and prevent them from spreading the virus. This has led to a severe lack of supplies worldwide as the supply chain broke down. Chinese companies cut their schedules and the shipping containers (about 60%), which are supposed to circulate worldwide, are still stuck in North America because these containers do not have any products to return with to China, so companies have left them in American ports to decrease their losses. This incidental disruption has caused delay in supplying products to the world; hence, a major shortage in many supplies has occurred. The damage will take months to heal and then go back to normal, and until the containers go back to work, the world will stay waiting for their products. To understand the concept of chain disruption, let us take Apple’s iPhone as an example. The phone design is made in America; corporations in approximately forty-three counties manufacture the inner parts. Apple buys these small parts and sends them to China for final build-ups. If any of the parts is delayed, not ready, or does not arrive on time, customers will have to buy iPhone in an expensive price or the phone itself might not exist. (Ibrahim, 2021). Shipping containers prices have also gone up rapidly by 80% since 2020 (Menapace, 2021). China’s fear of reintroducing the coronavirus, recent power shortages in Chinese factories, and growing labor shortages because of COVID-19 restrictions on travelling are among other reasons for this supply chain cut. (Palmer, 2021).
Going back to America, because of the amount of money distributed among Americans, the spending habits have increased rapidly and the demand from China has increased. Because of this, most of the shipping containers go to America instead of the rest of the world, and as said earlier, Chinese companies do not claim back their containers.
Considering all the previous factors, it is clear that inflation in prices is the next crisis that will hit the world, starting from plane tickets to pencils, among other services and products. The general rule says if consumers stop buying products, demand will decrease and prices will fall as supplies increase and vice versa. However, what is happening now is completely different from the general rule; prices are increasing and the demand is high while the supply is low. It is obvious that customers will pay the price, starting from product price, taxation and shipping expenses. Let us take one example for inflation in UAE. In 2021, the inflation rate is 2.02, expected to be 2.18 in 2022 (O'Neill, 2021), while in the US, the inflation rate is 6.8% in 2021, which is the highest rate since 1982 (Aratani, 2021).
In conclusion, no one knows how this new problem will finish, considering the New Year’s holiday in the West, where demands from China increase and the Chinese New Year holiday in February, where workers take a vacation too. We hope this new “economic pandemic” is over with a good ending.
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Ibrahim, A. (2021). Lematha Qad Tastamir AL-Asa’ar fi AL-Ertifaa’ Khilal 2022 wa Lematha Tartafe’ Aslan. [Video]. YouTube. https://www.youtube.com/watch?v=5Vi2h4MB2e8 6th Nov 2021
Konish , L. (2021). https://www.cnbc.com/2021/02/25/how-some-families-could-get-more-than-14000-in-new-covid-relief.html (CNBC News). FEB 25 20213:17 PM
Lobosco K & Luhby T. (2021). https://www.cbs58.com/news/6-trillion-stimulus-heres-who-got-relief-money-so-far (CNN News). Jun 2, 2021 4:34 PM
Menapace, B. (2021). Container Shipping Prices Have Now Quadrupled Compared to 2020 as Delays Become the New Norm. PromoMarketing Magazine. https://magazine.promomarketing.com/article/shipping-prices-quadruple-compared-to-2020-as-delays-become-the-new-norm/ July 6, 2021
O'Neill, A. (2021). United Arab Emirates: Inflation rate from 1986 to 2026 https://www.statista.com/statistics/297779/uae-inflation-rate/ Nov 23, 2021
Palmer J. (2021). Why China’s Supply Chains Are Breaking Down. https://foreignpolicy.com/2021/10/27/china-supply-chain-disruption-shipping/ OCTOBER 27, 2021, 4:51 PM
United Nations Statistics Division.(2021). https://unstats.un.org/sdgs/report/2021/goal-08/