Why is Everything so Expensive?

Why is Everything so Expensive?

Kevin Han

Since the start of COVID-19, prices have skyrocketed compared to the previous years, affecting the world.

To know more about the causes of the rising prices, we first need to look at the Global Supply Chain and what it is. According to the American Express, the “global supply chain definition is pretty straightforward: It is the worldwide system that a business uses to produce products or services.” 

This system suffered severely from COVID-19 due to workers facing health issues and poor work environments. This problem is called the Global Supply Chain Crisis. As stated by the New York Times, “the highly intricate and interconnected global supply chain is in upheaval. Much of the crisis can be traced to the outbreak of COVID-19, which triggered an economic slowdown, mass layoffs, and a halt to production.” This is one of the main reasons why prices for most things increased. The production of supply has decreased (due to fewer workers and COVID-19). At the same time, the demand for products has increased (many people working from home and rising usage of Amazon/online shopping), leading to this global crisis.

These shortages of products, called stockouts, have led to the increase of prices much higher than they already were. However, these shortages, especially of food and electronics, are expected to last much longer due to the pandemic. According to a paper from Harvard Business School, “In the US, stockouts rose from a pre-pandemic level of 19 percent to more than 35 percent by early May 2020. Stockouts started in health and personal goods but spread to other categories swiftly…After a year and a half, most inventory hit by temporary stockouts returned to pre-pandemic levels and inflation waned, ‘suggesting a gradual return to normalcy,’ the researchers write. Yet in some areas, shortages turned into permanent stockouts. In April 2020, roughly 20 percent of products tracked by the researchers had been discontinued. That number has not decreased much since then.”

One of the products that were hit the hardest with inflation was electronics, mainly computers. Due to the Global Supply Chain crisis—more specifically, the Chip Shortage—graphic cards (GPUs) prices skyrocketed, causing $300~$400 cards to increase to $800~$900, nearly doubling their prices. According to Pat Gelsinger, the chip shortage may “persist into [20]23,” meaning that PC prices will stay at the increased prices and continue to rise.

In addition, during 2020, most people worked from home due to the quarantine, causing the demand for computers to rise at the same time their production was slowing down. Along with this, scalpers, who quickly buy items that many people want (such as the recently released PS5) to resell at inflated prices, and crypto-miners (who set up mining farms with GPUs) both drain the supply pool quickly, causing the prices to rise even more. 

Other products that the Global Supply Chain crisis has had significant impacts on include “critical medical equipment,…cars, and other goods” (Imperial College London), “meat…and household products” (CNBC), and many more. This shortage of goods impacts the world’s economy, making it one of many critical problems that need to be solved.