Posted in: Wednesday, August 3, 2022 – 7:35 PM | Last update: Wednesday, August 3, 2022 – 7:35 PM
A friend sent me last Saturday morning the following short message on “WhatsApp”: “As long as the taste of food gets smaller, I know that inflation increases!!”
It is clear that this message spread on social media, to the point that some sarcastically called it the “falafel index.”
The Ta’miya disc is a practical example to explain the idea of inflation anywhere in the world, its size or the size of any other commodity, compared to its price, is a living example of the idea of inflation.
When I was discussing this idea with a friend I knew from childhood days in a village in Assiut Governorate, he said to me in a serious manner: “Until you understand the meaning of inflation in a practical way, and to know what happened to the value of money, it is enough for you to know that when I was a student in the primary stage starting from In 1971, my father’s money was a white shark. This shark used to buy me a loaf of bread with a pirate of falafel, and in order to know what happened to the money and its value, you simply have to calculate how much you need to buy now the same loaf and falafel. Most likely, the price will not be less than two pounds in any way, and therefore the real value of one piaster in the early seventies has now risen to 200 piasters, meaning 200 times.”
Most of us in Egypt, especially the elderly, are fond of the traditional stories that one shark used to buy “a time” more than ten eggs. We repeat that to our children, but we do not tell them the rest of the truth, which is that it is not important how big our financial income or our property is, as much as what is important is : Was this salary sufficient for our basic needs or not?!
For example, the same friend tells me that his father’s salary in the early seventies was 18 Egyptian pounds, but this salary was sufficient for the family of four members well. Now the minimum cost for the same family is five thousand pounds. So 18 pounds in the early seventies is the same as five thousand pounds now.
Therefore, the question that we should always think about is not the size of our salary or income, or what we have of money, but rather the value of what this money can buy.
Inflation, according to economic definitions, is when there is a lot of money, but there is no corresponding production or goods in the markets.
And the more money and fewer goods, the higher the inflation, and if the money is equal with goods, this means that inflation is controlled, but it is better that you have more production than your consumption, and therefore you can export surplus production abroad, and get more foreign currencies that can be translated into Various goods or financial surpluses that make the standard of life high in this or that country.
The reality is that with the repercussions of the Corona virus and the Russian-Ukrainian war, the majority of countries in the world suffer from the phenomenon of large-scale inflation, and the great fear is that this inflation is accompanied by a large and prolonged economic stagnation, and thus the world enters a tunnel that we do not know when and how to get out of it.
As a result of many and multiple reasons, the world’s debts increased and production decreased a lot, and many countries were forced to provide financial incentives to their citizens to face the repercussions of Corona and Ukraine, which was inevitable, but it increased inflation rates. When paper money increased and actual production decreased, many countries were forced to raise interest rates, in order to withdraw financial liquidity from the markets.
We saw that the US Federal Reserve increased the interest rate by 75 basis points a few days ago, which is the third increase this year. Because many countries of the world are linked to the US dollar and the US economy, these countries were forced to raise the interest rate as well, as happened in the Gulf countries, for example. In banks, it will be higher than its investment in investment due to the high interest rate on loans directed to this investment. One of the results of this is an increase in the unemployment rate, a decrease in the growth rate, and the entry of most countries of the world into a state of inflation that may develop into a recession, which means more unemployment and a further decline in production, and so forth.
Have you now realized the relationship between the falafel disc indicator and the faltering economic conditions in the whole world?!.