Deflation or inflation? A very controversial topic during the 19th century, after all, most of our economists were of the opinion that it was deflation. But why actually? To justify their train of thought, I would say that rising oil prices and unemployment play a vital role. The opposing team of economists predicted inflation, and quite rightly so. Again, the question is "Why?" Well, even though unemployment had already risen sharply before the Covid 19 pandemic. The number of job vacancies would certainly jump after the freeze was lifted, and it did. This led to inflation, even if only to a small extent. But this discussion is not about whether they are right or wrong. Rather, this situation sums up the nature of economics and reminds us that economics is entirely based on assumptions.

To understand this better I’d like to start with what inflation is. The rate of change in the cost of goods and services is referred to as inflation. However, the rates of price fluctuation for distinct items vary. Therefore, how one averages the prices of all the commodities and services in the economy will determine the inflation rate.

A crisis can upset the routine of people's behaviour, even in an economic sense. Covid 19 caused a fluctuation of the same. At the beginning, the prices of some goods, such as petrol, clothes and cars, fell. In terms of physical shops and services and even small businesses, inflation lost its meaning as all these businesses suffered losses. Deflation has 2 sides: demand and supply. On the demand side, all desires for luxurious goods and social gatherings have been extinguished. Supply has come to a standstill as supply and demand work hand in hand. Even after all this, inflation is still expected to increase.

Citing the World Economic Forum,

'After recovering to an estimated 5.5% in 2021, global growth is expected to decelerate markedly in 2022 - to 4.1%, due to a continued flare-up in COVID -19.'

They also conclude that inflation is expected to remain high this year.

Now the question is why did inflation increase during the covid pandemic?

There are two primary causes of the abrupt increase in inflation that we are currently seeing. First, Covid has prevented most people from making large purchases for the previous 18 months. People are spending and purchasing again now that the economy is up and running. Short-term inflation results from the fact that our system isn't designed to handle this degree of high demand. Second, the fact that interest rates have been nearly zero since March 2020 has increased demand for services. Another reason for this could be the decrease in supply and increase in demand.

However, not all of the recent price rises are anticipated to be temporary since residual pandemic effects may continue to boost housing and labour expenses for a number of years. Because of this, the average inflation rate for the upcoming five years may be slightly higher than pre-COVID.

How inflation has impacted rising prices in the UAE after Covid 19

Information from the UAE’s National Bureau   of Insights appears that the yearly inflation expanded to 2.58 per cent in November 2021, from 1.86 per cent within the past month. It was the fourth continuous month of rising inflation, and the most noteworthy since September 2018. The inflationary pressures were felt within the phenomenal rising costs of transport, and a litre of petrol and diesel costs Dh 3.66 and Dh4.08, individually. Diesel costs Dh 3.66 and Dh4.08, individually.

Are there any chances for deflation in the coming years?

To survey the drawback chance to the inflation viewpoint, we centre on the probability of seeing a net decrease within the cost level over the taking after year; this appears to be a significant length of time to consider in light of the expected term of deflation in the strong stage of the spread of COVID-19. 

What is next?

There are currently two different views about the future path of inflation following a proper recovery from the pandemic: one predicts that inflation will rise quickly, while the other believes that it will take a longer time to reach inflation. The mainstream view is that the continuing disruptions in the real economy will keep inflation from rising for the near future, say the next few years. Despite this uncertainty, it is likely that the level of uncertainty will remain high for a while.

What can Economists do?

If they believe inflation has become a permanent phenomenon, they will be under pressure to increase the policy rate. In order for them to ensure inflation expectations are anchored, they must also ensure that they do not impede the recovery from taking place. As a result of the pandemic, we are witnessing an increase in poverty and inequality. Economists making the right decisions will help businesses make rational decisions and benefit the economy over the long run.

Impact of Inflation on the poor?

Since poor households are largely direct consumers, inflation is a very serious burden for them. The consumption of lower-income families is significantly affected by price increases, particularly when compared to those of higher-income families. Furthermore, inflation, when left unchecked, can create poverty traps as well. In order to avoid starvation, low-income households need to eat poorer quality food in order to avoid starvation, which is potentially harmful to the cognitive development of their children. Aside from this, the poor do not have the ability to save money, which means that they are neither able to use their money to maintain their consumption habits nor are they able to get any sort of financial assistance to get them through.

Conclusion

Milton Friedman once said, ‘Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.’ This has hence proved to be true since the covid 19 pandemic has struck. Inflation did surge in terms of monetary terms.