Essay on Global Inflation and Unemployment

1279 Words 6 Pages
Article summary

This article by Andrew McCathie posted in EarthTimes and titled “European inflation climbs unemployment at 12-year high was posted on Friday July 30 2010. The article reports that food and energy costs have played a critical role in driving up inflation in the 16-member eurozone. The rates of unemployment remained stagnant to its highest level during this time.

Introduction

The recent global financial crisis that affected not only America but also Europe and other parts of the world resulted in massive unemployment. This is due to the high costs of operation that many corporations faced forcing them to cut on labor costs. There is need for European government interventions to avert this social crisis and prevent the
…show more content…
This value is of much significance to investors as it has an effect in inflation rates (Cencini, 2008).

The global financial crisis has had multiple effects in different industries in different countries.

Analysis

Consumer price index

This is the overall cost of goods and services that are bought by an average consumer. This index is used in measuring the cost of living over a given period of time. When there is a rise in consumer price index, a typical family has to spend more money in order to maintain their standard of living. Inflation is a term that is used to describe a situation where the overall price level of an economy is rising (Mankiw, 2008).

Inflation



From the above graph, it can be seen that since July 2009, the consumer price index has always been increasing in Europe. This increase in consumer price index has been pushing inflation higher and higher. This has resulted in decreased profitability of most European corporations thus cutting down on costs by retrenching some staff hence causing unemployment. If this is not checked, then there is a chance that this will be a vicious cycle that will occur throughout the years.

When massive unemployment occurs, the average purchasing power of an economy reduces. This could have an effect of forcing corporations to increase prices of their goods and services in order to maintain profitability. The net effect of this is increase in consumer price index further driving the…

More about Essay on Global Inflation and Unemployment