Dickson Igwe, socio-political columnist
Interest rates are the key mechanism by which Central Banks control the economy increasing rates when the economy overheats and reducing rates when there is a need for credit and liquidity in markets to boost economic growth.
Hyperinflation is a precursor of Depression, and Depression – a deep long recession which is very damaging- must be prevented.
Central banks are the key institution leading the cavalry charge, preventing economic disaster, from runaway price rises and plummeting consumer and business confidence. Depression is worse than Recession and can completely destroy an economy with contraction that continues for a decade and more.
Central banks, and the management of the money that is derived from these institutions, will decide the fate of the world economy, and the strength and length of the inflation dilemma that is staring us all in the face today.
Organizations and individuals play a major role too, in the management of scarce resources, and that, further impacts prices and inflation. We all in a small way have a part to play, to control inflation. Economics is human behavior.
- Runaway Inflation- increasing prices due to a host of factors – has been the 800 LB gorilla in the economy starting the tail end of 2021, sending western economies into a vortex of uncertainty. High inflation is back this March 2022.
Now, high or uncontrolled inflation is never a good thing. And for how long the high inflation monster will harbor in the world’s economic waters, is uncertain.
And although a small amount of inflation is considered a necessity- enabling healthy demand and supply in an economy- uncontrolled Inflation is destructive.
Inflation reduces the power of the cash in our bank accounts and pockets to buy the essentials and non- essentials that makes life livable. Inflation is a beast that devours our finances and assets.
Then there are other drawbacks from an inflationary environment such as a fall in consumer and business confidence leading to recession.
High inflation is a demand and supply disruptor. Under normal circumstances, as consumer demand for goods and services increases, so do prices. The movement of Consumer Demand decides the products and services that are in the marketplace, and scarcity is a tool that decides prices under normal conditions. The preceding is quite normal, and accounts for good inflation.
The other end of the see saw is where supply meets consumer need which further allows for a healthy pivot in prices. This dance of demand and supply is the norm in economics, and promotes a balanced economy.
The goods and services supplied meet the needs of consumers. Suppliers understand the needs of their customers and clients, and possess the wherewithal to meet those needs at a sustainable price and cost.
However, high inflation disrupts this process – that has evolved from the Industrial Revolution of the 1700s and even before that. Rising inflation injects uncertainty and fear into the economy.
Inflation is like the heavy kid who jumps onto the seesaw being enjoyed by two smaller kids, causing the regular pivot of the mechanism to become unbalanced, with sometimes dire consequences.
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Dickson Igwe is an education official in the Virgin Islands. He is also a national sea safety instructor. He writes a national column across media and has authored a story book on the Caribbean: 'The Adventures of a West Indian Villager'. Dickson is focused on economics articles, and he believes economics holds the answer to the full economic and social development of the Caribbean. He is of both West African and Caribbean heritage. Dickson is married with one son.
