Essential Goods During the Pandemic: Why are Prices So High?

During the ongoing pandemic, several essential goods have seen their prices escalated to unprecedented levels. This phenomenon is not only evident in products like vaccines and gasoline, but also in several other items that have significantly affected our daily lives. Let's delve into the reasons why these prices have become grossly inflated and why consumers continue to purchase them despite knowing the inflated prices.

Vaccines and Taxes: A Battle of Accessibility and Affordability

One of the most contentious issues during the pandemic has been the price of the COVID-19 vaccine. Despite the fact that the majority of the vaccines were developed with government funding and are distributed through public health programs, there is still a perception of inflated pricing, especially among the general public and taxpayers. Governments around the world have had to invest substantial amounts of money to secure vaccine supplies, which in turn drives up the cost. Moreover, private companies involved in the vaccine manufacturing and distribution also added to the price tag, creating a perception of excessive pricing. The public feels that they are paying too much, yet they have no choice as these vaccines are crucial for public health and safety.

Gasoline: The Essential Product with Elastic Demand

Another product that has seen a price hike during the pandemic is gasoline. In many parts of the world, gasoline prices have more than doubled since the start of 2019. This increase can be attributed to a combination of supply chain disruptions, production costs, and the economic impact of the pandemic. While some users have sought alternatives like public transportation, riding a bicycle, or working from home, the majority of the population still relies on personal vehicles for various reasons, such as the need to commute to work or travel for essential services. This high demand and limited alternative options contribute to the elasticity of prices, making it challenging to curb prices despite the high demand.

Supply Chain Disruptions and Essential Goods

One of the primary reasons for the sustained inflation of essential goods is supply chain disruptions. As the pandemic spread globally, it led to a significant reduction in manufacturing activities, particularly in countries where major factories are concentrated. This sudden halt in production caused a supply shock, disrupting the normal flow of goods and leading to a scarcity of raw materials and finished products. The impact is particularly severe for essential goods, where consumers are often willing to pay higher prices to secure these items. Consider the case of a global chip shortage, which had a significant impact on the automotive industry, particularly in the production of microchips.

The chip shortage during the pandemic significantly limited the production of new vehicles, with companies like Nissan and General Motors facing significant production cuts. The United States Vehicle Manufacturers Association reported a 500,000 car shortage due to the chip shortage. This reduction in supply led to an increase in the demand for used cars, as many consumers turned to used vehicles due to the unavailability of new ones. As a result, the used car market experienced a significant price increase, with the average used car price index soaring significantly during the pandemic era.

Global Comparison and Expert Predictions

The price surge in essential goods during the pandemic is not limited to the United States. Categorically, similar scenarios have been observed worldwide, with variations based on the specific markets and regulatory environments. For instance, in Europe, the cost of food and household items has also seen a substantial increase. The same situation has been reported in Asian countries, with many facing a shortage of raw materials and intermediate goods, leading to a rise in prices.

According to experts, it is likely to take at least another year for the market to stabilize, particularly for items like microchips, which are integral to many electronic products. The global chip shortage is expected to continue as major manufacturers struggle to meet the increased demand for electronic devices, particularly as they are widely used in a variety of industries. However, it is heartening to note that despite the high prices, consumers continue to purchase these essential goods, often driven by necessity and the lack of viable alternatives.

Conclusion: Addressing the Crisis

The current crisis highlights the critical need for better supply chain management and government intervention to mitigate the impact of supply chain disruptions. In the short term, governments can invest in local manufacturing to reduce dependence on global supply chains. In the long term, efforts to improve global supply chain resilience and transparency can help prevent similar price hikes in the future. Additionally, consumers should be encouraged to explore alternative options, such as public transportation, carpooling, and digital products, to reduce their reliance on high-priced essential goods.