Have you realised lately that your grocery shopping bags are becoming lighter, even though you’ve been spending the same amount? Well, it’s no longer news that things are getting more expensive everyday!
Come on, the price of gas in the United States went up by 58% last year and beef by 21% – there’s no doubt this is hitting us pretty hard! And since we can’t do so much to help things, wouldn’t it feel a little better if we know exactly what’s causing this? Of course it will! In this video, we will take a look at 10 reasons why things are super expensive! Welcome to Alux! If you don’t feel like reading the article here’s the video version:
1
Inflation
You’ve probably heard this term thrown around, and you already know that it refers to an increase in the price of goods and services.
And while you might think this would typically affect the price of groceries and everyday items, it affects everything else from flight tickets to credit card charges and a basketball game ticket.
So, simply, if a country experiences a rise in inflation, its people will naturally have to increase their cost of living.
And this means you might pay $40 for an item you once got for $20, with no change in quality or quantity.
2
Government Regulation
Sometimes, inflation can be caused by new laws by the government; take for instance, the government imposes a new tariff on importers and exporters, making it slightly more expensive to move goods in and out of the country. Since the new law causes importers to spend more money, these guys increase the price of the goods.
Then, the guy who buys from the importers notices this change in price, buys it still, and sells to you at a slightly higher price. And there you go, inflation slowly creeping into the economy.
3
Change in Exchange Rate
The foreign exchange market is another factor that increases the price of things. Here’s how it works: the forex market is a place where currencies can be used to buy another.
Just think of it as a place where you can use money to buy money, just in different currencies. Now, this exchange is based on the value of the currencies involved.
So, if the dollar dips against the Euro, it means I can buy more items with €20 than I can with $20. We know what you are thinking, how would this affect the price of products in my own country?
Well, it’s almost like how government regulations work; we now live in a global market, and a number of our goods are imported from other countries.
If the dollar dips against the currency of the country exporting to us, then we have to pay more because the dollar has lesser purchasing power, when placed side by side with this other currency. Again, it’s only a matter of time before this becomes a full-blown inflation.
4
National Debt
Debts suck, and as you probably guessed, most governments around the world will agree with that phrase.
We know you might shrug off the possibility of a national debt affecting you, after all you didnt ask the president to take a loan.
Well, you already know how much we hate to ruin the party, but it kinda affects you big time.
National debt doesn’t directly cause an increase in the price of our goods, but there’s a spiral effect that could show itself in three indirect ways.
First, national debt can force a government to increase taxes, and it will then use these taxes to repay the debts. Sounds like a fair deal, right? Well, not really.
5
Expanded Money Supply
We took a quick look at this in the previous number, but let’s take another shot at it. Printing more money builds an expanded money supply, and it means that the country is printing more money than its economic growth rate can handle.
In economic terms, the money supply in circulation has to always match its economic output. Think of this like an auction, 500 individuals are bidding to buy an antique art piece.
The first bidder says a million dollars, and this number picks up all the way to $50 million. Now, at the start of the auction, $1 million was worth a lot, but the more bidders and the higher the price went, the value of a million dollars reduced in that situation, right? That’s exactly how printing more money affects the value of money, and the eventual price of goods and services.
6
Rising Wages
“Rising wages? Come on! How can that be why things are so expensive?
Doesn’t it mean we’ve got more money to spend on more things?”
Interesting thing is this, you aren’t wrong, but that exactly is where the inflation happens.
Now here’s something you should know; an increase in the cost of goods isn’t always a bad thing. In fact, some countries see mild inflation as a sign of a growing economy.
With higher wages, we have more purchasing power, which also means there will be an increase in demand.
At this point, the manufacturer of a good or supplier of a service notices this trend, and increases the prices of their products.
Again, this results in more jobs and more money in circulation, and the wheel of inflation goes round and round again.
7
Shrinkflation
Now, here’s a factor that technically doesn’t affect the price of a product, but the quantity.
Shrinkflation is the process of reducing the size or quantity of a product, while still selling it at the same price.
Most times, this happens in the food and beverage industry, and as sneaky as it might sound, it isn’t illegal in any form.
This is because companies are required to always state the weight, size, and quantity of a product on its pack, and in fact they always do, they just know we never check them out!
Most manufacturers are worried that outrightly changing the price of their products might push some of their consumers to a competitor, so they choose this path.
8
HOARDING
Again, here’s another not-so-honest factor; hoarding is a process whereby someone hides a certain product and doesn’t release them to the general public until the demand for this product becomes unbearable.
Imagine a person hoarding face masks during the pandemic, only to release it when everyone in the entire world needs one.
Naturally, when an essential product becomes increasingly scarce due to hoarding, the demand for the product simultaneously increases.
So, when this hoarder decides to finally release this product to the general public, they are sure we’d be willing to pay more than its initial worth.
This dishonest method is usually employed by producers and sometimes middlemen, and it artificially creates an excess of demand in a country.
9
Demand Pull
Ever since the pandemic ended, there’s been a huge rise in demand, and unfortunately, the supply has remained the same, or failed to catch up with the growing demand.
For example, the demand for gas has increased because there are more people driving, and more people travelling which in turn has resulted in a price hike for hotel rooms and travel tickets.
Basically, there are more people trying to buy several goods, but the items in circulation aren’t enough for all of us.
Eventually, the prices are increased and these available goods will only be sold to those who can afford them.
10
Cost-Push
Cost-push inflation reflects the fact that we mentioned at the start; if a producer has to spend more money getting their goods to the final consumer, then the consumer will be paying more for this product. And unfortunately, nature can affect this cost-push inflation. Let’s say you own a company that specialises in making tires.
But instead of owning rubber trees, which is an important raw material, you decide to buy from a company that specialises in that. Unfortunately, this company suffers a mishap; a crazy storm destroys more than half of the trees. Now, if this affects the major suppliers of rubber, it means the industry can supply only a fraction of rubber to producers like you.
And since the rubber is limited, it will be sold at a higher price. You also want to maximise profit so you decide to hike the price of one tire by a few dollars, and there you have it: inflation in the works.
11
Imported Inflation
Imported inflation is an interesting one; if the global price of a product increases, it is only natural that the price of this product will remain increased when this product is imported into your country. And if your country’s currency is constantly losing its value, then the price of this product goes even higher!
Thank you for spending some time with us today, we are so glad you did! If you found value in today’s video, please give us a like! Hit the bell icon to never miss an upload, and don’t forget to subscribe!
