Have you noticed prices going up, well that’s what you call inflation. Whether it’s the price of a new car (3%,) gas, groceries (6.1%,) rent, or even utilities (4.9% increase) things have been increasing in price drastically mostly due to Covid-19 pandemic, but even pre Pandemic prices were increasing. Continue reading to find out what caused the nearly 40 year inflation high and how it will affect you, if it does at all.
What Is Inflation?
Inflation is the decline of purchasing power of a given currency over time. The rise in the general level of prices, often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods. In 2021 inflation hit a 39 year high, with an inflation rate of 7% in November 2021, the highest since the 6.8% increase in June 1982. The monthly rate is seen easing to 0.4% from 0.8%.
What causes inflation?
Causes of inflation include prices rising due to an increase in production costs, which include raw materials and wages. An increase in need for products and services can cause inflation as consumers are willing to pay more for the product.
There are two main causes of inflation: demand-pull and cost-push. Both are responsible for a general rise in prices in an economy, but they each work differently. Demand-pull conditions occur when demand from consumers pulls prices up, while cost-push occurs when supply costs force prices higher.
Demand-pull inflation occurs when consumers have greater disposable income. Having more money to spend allows people to want more products and services.
Expansionary fiscal and monetary policies, consumer expectation of future price increases, and marketing or branding can increase demand.
Cost-pull inflation happens when supply decreases, creating a shortage. Producers raise prices to meet the increasing demand for their goods or services. This was evident in 2020 when the country had a huge demand for toilet paper and paper towels. and since then toilet paper and paper towels have increased in price by 16% or roughly $1.50.
An increase in wages, monopoly pricing, natural disasters, government regulations, and currency exchange rates often decrease supply in relation to demand. We’ve all seen it, prices rise after hurricanes, tornadoes, or winter storms; never to come down again.
What caused inflation to get so high?
Consumer prices have hit a 39-year high in the United States. When inflation spiked in the spring/early summer of this2021, it was largely due to the so-called base effect, caused by the pandemic’s cooling effect.
But, questions are now being raised about whether the rise in prices is just a statistical blip or something more.
Paying more, do you have a choice?
Rising inflation means you have to pay more for the same goods and services. If your income doesn’t keep pace with inflation, your buying power declines. Over time, inflation increases your cost of living. If the inflation rate is high enough, it hurts the economy. It always seems like prices rise but pay stays the same.
Minimum wage in the United States is $7.25, and it has been that since 2009. The cost of living has gone up but not minimum wage. How does the government think people are supposed to live off minimum wage? The president, Vice President, and all members of congress are paid rather well but their constituents are suffering.
It would be nice if we could haggle prices on food, gas, etc. like we can when purchasing a new vehicle.
Why is inflation running so high?
The increased demand might not be too bad for inflation on its own, but the U.S. economy is also experiencing significant supply chain problems tied to the COVID-19 pandemic. This is driving up the cost of production and reducing the supply of goods, also pushing up prices.
Is inflation a good or bad thing?
Inflation isn’t always a bad thing. A little bit is actually quite healthy for an economy. But even when their wages are rising, higher inflation makes it harder for consumers to tell if a particular good is getting more expensive relative to other goods, or just in line with the average price increase.
Does inflation ever go down, or does it continue to rise?
Consumer price inflation will likely continue as long as companies struggle to keep up with the consumers’ prodigious demand for goods and services. Companies such as Beautycounter haven’t raised their prices until recently. Beginning February 1, 2022 Beautycounter customers saw a 10% increase on products they use. Beautycounter stated to consultants that the economy was calling for a 14% increase this year, they however were choosing to do a flat 10% across the board.
In conclusion, inflation may be something that we may not like but is necessary for the economy. When it helps boost consumer demand and consumption and driving economic growth, inflation is a good thing. Some people even believe that inflation is meant to keep deflation at a minimum. Some people think that inflation is a drag on the economy. If prices rise but pay stays the same, then I can see why some people believe that.
While I do not personally like to see prices growing and pay staying the same I can understand why companies are raising prices. They have to pay higher prices for products so of course their consumers are going to have to pay higher prices for products.