Inflation as described in the video refers to a complex series of events during which there is a general rise in the price of products. This can also be referred to as positive inflation. It reflects that the present price of goods and services alike has undergone an increase (International Monetary Fund, 2021). In relation to the increase in pricing, the value of the currency by which the goods and services can be purchased can observe a decrease. This is because a single unit of the currency can purchase fewer goods or services, thereby limiting the buying power of the entire currency.
As such, inflation can signify this devaluation and a decrease in purchasing power of a monetary currency. Inflation can be driven by both a lack of supply and increased demand. Reduced supply may often be the result of an error, such as blockages at export hubs and other issues within the exchange of goods. When the supply is unable to meet the current demand, the demand can be seen as higher than usual which does affect pricing. Short-term high demand suggests growth within the economy and is positive, but middle and long-term high demand can implicate difficulties and limited development. High inflation can discourage investment and growth within selected markets. As such, the use of an anchored expectation of inflation is vital to banking systems.
A predicted level of inflation allows banks and policymakers to respond accordingly, such as through the lowering of interest rates which increases the demand for investment opportunities. This requires that consumers and banks are similarly aware of the rate of inflation and its likely trajectory. A miscommunication of the anchored expectations leads to a de-anchoring and can have hazardous implications for banking systems and markets alike.
While the video provides accurate technical information regarding inflation, the introduction of policymakers and changes by banking systems does not provide depth. Monetary policies that are seen to be introduced by both parties are often ineffective in the long run and occur at the cost of the consumer (Petrou, 2020). This is primarily because these policies are inadequate in curbing the effects of inflation on consumer goods in the case of volatility. The pandemic had displayed that the rapid inflation in relation to regular goods, as well as medical access and products, can have lasting and complicated consequences. Banking policies of the time were highly inefficient in the reduction of not only inflation affecting prices but of predatory pricing systems held by some firms.
The current events are not limited to social or political factors, as climate change is also a deeply related element. Recent years have presented severe extremes of weather that are disruptive to the global economy (Schnabel, 2022). As such, these major and volatile factors cause issues in output and inflation that are rarely adequately addressed by policy or bank modifications. As such, I find that inflation in volatile situations must be studied more deeply in order to attempt to introduce truly effective countermeasures. This can range from a pandemic, socio political conflict, and environmental-centered issues that have an intrusive effect on consumer good pricing. Current policies continue to observe inflation in a very traditional sense, a lack of supply that correlates to higher demand. However, in practice, inflation is often hazardous in cases of extreme volatility and is often ineffectively met by policies.
References
International Monetary Fund. (2021). Analyze this! Inflation. International Monetary Fund. Web.
Petrou, K. (2020). The Fedās anything-we-can-think-of monetary policy isnāt working. Barronās. Web.
Schnabel, I. (2022). Monetary policy and the great volatility. European Central Bank. Web.