If you’ve been following the news from Europe for the last few months, you’ll notice that the headlines have been dominated by the cost-of-living crisis. This crisis has occurred for a few reasons, including the Russian invasion of Ukraine and poor governmental choices.
While it hasn’t hit America as bad so far, experts are warning that a crisis is coming. Here’s everything you need to know.
What’s happening with the cost-of-living crisis?
Inflation happens every year – so why is it going up at such a speed now? There are several factors that are causing inflation, the main one being the sanctions imposed on Russia as a result of the war in Ukraine.
Because countries around the world don’t want to buy Russian gas, they are using more expensive alternatives. Other reasons why inflation is so high are disruptions in supplies thanks to the Covid pandemic (the market can’t keep up with the flux in customer spending).
As the Ukraine war is happening in Europe, this continent has felt the brunt of the cost-of-living crisis the most. But now it seems to be coming to America.
What’s happening in the USA?
The effects of the lack of Russian gas and other events, such as the Nord Stream pipeline system being blown up, have caused a knock-on effect on the USA.
The country finished summer with gas storage far below average levels, which means that it’ll need to purchase more throughout the winter. But globally, there is less to purchase.
This will mean more expensive energy prices throughout the country – an average of around 17.2% increase – which will have a further domino effect on the cost of living, potentially affecting industries from travel to hospitality.
And although the dollar is strong at the moment when compared to EUR and GBP, this could stoke a wider recession in 2023.
Why is it such an issue now?
Part of the reason why the cost-of-living crisis is so apparent now is that there are so many more ways to spend money than there were in the past. A century ago, people earned money and spent what they earned. Sure, some people racked up debt or went to gambling dens, but most people lived within their means, even if that meant not having much.
Nowadays, it’s effortless to buy things that we don’t need on our computers or mobile devices – in just a few clicks, you can purchase expensive electronical goods on Amazon or do an entire ASOS shopping haul.
Buying things on credit is a big thing in America, and what’s worse, you can nowadays apply for credit from your phone. While banks generally do sophisticated credit checks and don’t offer cards to people with bad credit history (although, of course, they do still give cards to people who can then go and rack up a load of debt!), it’s ridiculously easy to apply for credit on apps like Klarna.
Klarna is a “buy now, pay later” app that many people have struggled with, as they have ended up in debt over spending money that they didn’t have and weren’t possibly going to earn. Klarna has been slammed recently for offering an “eat now, pay later” scheme by linking with Deliveroo. When people use credit, they often find themselves in even worse financial situations than before.
You can even gamble on your phone. While many of the best pay by phone casinos have caps on how many deposits you can make, this is often hundreds of dollars, which could still land people in dire consequences when the price of everything else is rising.
What’s the solution to the energy crisis?
It’s difficult to pinpoint just one solution to a problem that’s encompassing the whole globe. Russian sanctions are likely to be in place for a long time – which means that the world needs to turn to other sources to find energy.
One of the main issues is that people, by and large, use too much electricity. Many people don’t think about turning the lights off every time they leave a room or turning the TV off if they’re just using it as background noise while they complete unrelated tasks. In fact, Washington Post thinks that most people are clueless about how much energy they use and that more needs to be done to encourage people to cut back on their spending. If anything, the threat of blackouts this winter in the UK and other countries could serve a purpose to encourage people to waste less!
Another resource to look to is green energy. This has been at the forefront of many people’s minds over the last few years, but perhaps this energy crisis could be the event that finally speeds the “green revolution” up and encourages people to use more sustainable sources of power, like wind farms and solar energy.
These energy sources are completely sustainable and, although expensive to set up, work out a lot cheaper in the long run.
Some governments are also turning to other providers of gas; Saudi Arabia has long been a big provider, although President Biden’s current war of words with the Middle Eastern nation could affect this. Some of America’s close allies, like Canada, have their own sources of gas too.
In terms of cost of living, governments around the world have unveiled plans to tackle poverty – although many have been criticized as either not doing enough or benefiting the rich only.
For a consumer, these uncertain times can be a bit scary, but simple steps, like using plenty of layers of clothing and cutting down on luxuries, can be taken to contribute to tackling this problem.
The energy crisis isn’t a problem that’s going to be resolved overnight. It’s the cumulative effect of lots of issues over the past three years, and most experts agree that the best way to tackle it is a long-term change to different types of energy. Hopefully, it’ll be a learning lesson for both governments around the world and people on a more individual level.
