Inflation is one of the most troubling issues facing economists and government policymakers and is a factor that increases the risk of recession in the US. The causes are innumerable and the tools commonly used to tame price pressures can, in some scenarios, push the economy into recession. Here’s what you need to know: What is inflation? Inflation reflects a sharp rise in prices or a fall in the value of money. It generally results from excessive demand chasing very few goods or limited services, leading to price increases. Inflated prices do not necessarily hurt the economy as a whole, and only consumers who make purchases experience growth. For example, the prices of new and used cars have risen sharply due to shortages of vehicles due to a lack of components such as semiconductors. Rising car prices do not necessarily affect you unless you want to buy a vehicle. Higher prices in one sector also do not necessarily lead to general inflation throughout the economy. However, price increases in a number of categories will weaken the consumer power of consumers. What causes inflation? The current period of inflation has many causes, many of which are related to the pandemic. First, consumers have saved money from government stimulus programs and reduced service spending as a result of business constraints, which have led them to open their mouths to goods that are in short supply. The supply chain downturn also continued throughout the global economy, with Russia invading Ukraine and Covid-19 cases in China adding to the pressure. Energy prices, including record petrol prices, have risen sharply. Truck drivers, seaport slots and warehousing are all in short supply, resulting in costly delays and rising freight rates. Fewer workers are in the job market, encouraging those working to ask for increases. And low interest rates from the Federal Reserve have made borrowing cheaper, making large markets more attractive. The Fed is now moving fast to make lending more expensive, using the central bank’s main tool to raise interest rates. These factors and many more increase the cost. The additional cost, at every step from production to sale, leads to price increases for consumers, with some companies taking advantage of a rare opportunity to raise prices. Read the full article.
