As we progress into the latter half of 2023, it remains a worrying finding that the cost of living around the world has soared. It has left many people wondering why.
Are we on the verge of hitting a worldwide recession through ongoing geopolitical tensions, trade disputes, natural disasters, the ongoing pandemic and climate change?
(Read more on climate change in my separate posting here)
The reasons behind this sharp escalation are numerous and complex, interwoven with each other in a fine tapestry of economic shifts.
Here I discuss my perspective on some of the reasons that are driving this trend. I hasten to add I’m not a worldly economist, but I have certainly felt the pinch, as I’m sure any reader will empathise.
So, I decided to investigate some of the main reasons why.
Inflation’s Impact: Pandemic-Fuelled Price Pressures
One of the most significant factors driving high living costs is inflation. Inflation has been on a steady upward trajectory, particularly in the wake of the COVID-19 pandemic. This brought unprecedented economic disruption.
Governments globally have been pumping vast sums of money into their economies to stimulate growth and cushion against financial difficulties.
However, this has also led to a decrease in the value of currency. This has caused the prices of goods and services to increase, thereby contributing to the high cost of living.
Supply Chain Shock: Disruption-Driven Dilemma
Another key driver is the global supply chain disruption. This has persistently plagued markets since the onset of the pandemic and has yet to fully recover. The disruption in the flow of goods has led to a rise in prices for everything from food to electronics as manufacturers and retailers grapple with the increased costs of production and delivery.
This cost is often passed on to the consumer, contributing to the high cost of living. At one point in Australia last year, it cost $AUD 12 for a single lettuce and broccoli was almost $AUD 10 per kilogram. This was due to natural disasters, such as catastrophic flooding in the eastern states, to name but one contributing factor.
And as another El Niṉo Southern Oscillation (ENSO) is forecast for next year, the situation will perpetuate as the planet continues to cook itself dry in areas, having a knock-on effect on the agricultural industry.
This year’s climatic events will ensure 2024 surpasses 2016 as the world’s hottest year on record.
Of course, warfare in various parts of the world has clearly added fuel to an already towering economic inferno. The war between Russia and Ukraine has undoubtedly been in the spotlight since February of last year.
With a population of over 40 million, Ukraine has been referred to as the “breadbasket” of Europe due to its fertile farmland. It is one of the world’s largest exporters of wheat and corn, making it a key player in global food security.
Geographically situated between Russia and the European Union (EU), Ukraine is also a major energy producer, with the EU being a major energy consumer. As a result, it plays a significant role as a transit hub of natural gas from east to west.
Furthermore, Ukraine has a broad base of industrial production, including metallurgy, coal mining, chemical industry, machinery and manufacturing. It is one of the largest exporters in the world of iron, steel and mining products.
Housing Hike: Urbanisation And Upscale Demand’s Upshot
Housing prices have also skyrocketed, exacerbating the cost of living. Urbanisation and the demand for housing in cities have outpaced supply, causing real estate prices to surge.
Additionally, the shift towards remote work has sparked a demand for larger living spaces, further driving up housing costs.
(You can read more about working from home in my separate posting here).
Energetic Expenses: Rising Rates From Renewable Resources
Energy costs, too, have played a major role. A combination of increased demand, restrictions on fossil fuel production and the transition towards renewable sources has led to a hike in energy prices. Energy bills in some parts of Australia have skyrocketed by 25% in the past couple of months.
These costs directly impact households but also ripple through industries and services that rely on energy, culminating in higher prices for consumers. However, in the long run, it will better prevent the planet from choking on the millions of tonnes of noxious gases it is producing annually.
Healthcare Hurdles: Pandemic-Propelled Price Pains
Healthcare costs continue to rise as well, particularly in countries like the United States. The pandemic has put an enormous strain on healthcare systems, leading to increased costs for medical services and insurance.
Again, these costs are often passed on to consumers, adding to the high cost of living.
Tech’s Toll: Digital Economy’s Expanding Expenditures
Technological advancements, while making life easier, have also added new expenses. The emergence of the digital economy has led to additional costs, such as data plans, software subscriptions and new hardware, which didn’t exist a generation ago.
Wage Woes: Stagnant Salaries Struggle With Soaring Spending
These ‘digital costs’ are now a significant part of the average household budget. It’s important to note that while these factors have increased costs, wage growth has not kept pace.
Many workers have seen their income stagnate or even decline in real terms. This has led to a decrease in purchasing power and made the high cost of living even more pronounced.
So, As We Leap Towards The Next Leap Year?
The complexity of these issues means there seems to be no quick fix and it requires a nuanced approach to navigate this economic landscape effectively. It also presents a chance for businesses and individuals to find creative solutions in how to prioritise affordability.
It is crucial for policymakers to address the underlying factors in a holistic manner that will only pave the way to ensuring a more sustainable and prosperous future for all.
Thoughts and comments are welcome below.
About Surrinder Singh
Dr Surrinder Singh is a medical doctor, blogger and freelance writer. He is passionate about healthcare, medicine and education and works professionally with B2B and B2C clients.
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