Three things that need to happen for prices to return to normal

As the rising cost of living continues to put a strain on people’s lives, many have been wondering how and when things will get better.

In a recent Q&A, Sky News readers asked questions on the crisis – one of which was: What has to happen for things to go back to normal?

Our business presenter, Ian King, answered:

1. An end to the war

That would be the greatest single improvement in geopolitics and global macroeconomics – not only because it might bring an end to some of the suffering we are seeing in Ukraine right now and the dreadful famines that a shortage of Ukrainian grain is starting to cause across the Middle East and Africa, but also because it would ease the supply issues that are causing elevated prices.

2. An end to supply chain bottlenecks

An end to the supply chain bottlenecks that still exist around the world due to COVID lockdowns, chiefly in China, would also help.

3. A return to more normalised interest rates

The classic definition of inflation is that it is caused by too much money chasing too few goods (or services).

We have had, due to the global financial crisis, then the Eurozone debt crisis and then the pandemic, extraordinarily low interest rates (or negative rates in the Eurozone, Japan and some other countries), accompanied by a vast expansion in the global money supply over the last 14-15 years.

This has created all kinds of imbalances everywhere.

It may not feel like it if you have a mortgage or are borrowing, but the recent interest rate rises from the likes of the US Federal Reserve, the Bank of England and the European Central Bank are actually good news in that they reflect a return to what might traditionally have been regarded as more ‘normal’ borrowing costs.”

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