Inflation and Globalization
For the first time in a generation, inflation is significantly squeezing people’s budgets. After decades of hovering around two percent, the rate generally seen as ideal, it recently shot past five and could easily go higher still. More worryingly, prices for certain things have risen substantially more. Beef is up over 15% in a year, with dairy products close behind. The increases in costs for renovations and household appliances have also been well in excess of 10% over the last year. And of course, anyone looking to buy a home has felt the full brunt of inflation in the housing market, which many would say is out of control.
There are quite a few reasons for such steep increases in prices, most of which have been thoroughly covered elsewhere in the media.
One factor that has so far escaped attention, however, is globalization. Or rather, recent efforts by most western countries to begin winding it down. The pandemic and the resulting government responses from across the world have shown us the dangers of relying on imports for many of our most crucial products. Many governments have spoken about supply chains, and how temporary interruptions in access to foreign imports have driven up prices. In response, many corporations are now bringing back local manufacturing, under pressure from clients and shareholders as well. More voices than ever argue that this is completely reasonable, and will help to provide a more reliable supply of critical goods as well as better jobs within our counties after decades of losing them to other nations.
Yet although globalization’s impact on our societies’ overall well-being was and will continue to be hotly debated, one thing is clear - that globalization did indeed drive down prices for consumers, especially in terms of manufactured goods. This was largely due to cheaper labour and looser environmental regulations in developing countries where factories were located. Regardless, we’ll almost certainly see the opposite effect on prices now. Manufacturing the same product at many smaller factories in more developed countries will be more expensive than making the same thing at a handful of large facilities concentrated in a single developing country. Many of us are willing to pay more to know that workers are being treated and paid well, and the environment is respected. Yet we should still be prepared for these higher costs, not be surprised when they come, and plan accordingly. We should also be aware of the ripple effect of these costs, as the extra expenses farmers face for equipment are passed on to customers at the supermarket.
Energy costs are rising due to changes in the global order as well, in particular as developed nations look for alternatives to imports from countries that use the proceeds to prop up nasty regimes.
These are just some of many factors causing inflation, yet the impacts of higher prices will be greatest on those earning the least. How we protect those on fixed incomes is something that we should start preparing for now, especially considering that inflation is unlikely to go away any time soon.