What are the causes of inflation?
To paraphrase Pogo, “We have met the enemy and it is (mostly) us.” While inflation is a complex issue, there are some obvious causes.
The inflation we are experiencing now started with Covid. Many sectors of the economy around the world were either shut down or pared back because of Covid. This disruption caused complex supply chain issues, some of which are still with us.
Most countries around the world started giving money to their citizens and companies to help them through the crisis. This was particularly helpful to those on tight budgets, workers in jobs that shut down, and small businesses that depended on walk-in people traffic.
Since Covid faded, middle income earners — nurses, teachers, hotel workers, auto workers, etc. — have either struck and/or bargained for higher pay and improved working conditions.
Climate change has added to the cost of everything from food to building materials. Farmers and ranchers are having to deal with drastic weather changes in temperature or rainfall, which wreaks havoc with crops and livestock. NOAA estimated that climate change is costing the U.S. economy about $1 billion every ten days. The demand for materials to rebuild and to build for climate change is a drain on the normal flow of these materials.
The inflation rate in the U.S. is generally lower than most other countries, so when we buy from other countries, we are paying their inflation rate.
Corporate greed also plays a role here. Economists will tell you prices go up faster than they go down!
The wars in Ukraine and the Middle East also add to inflation because they consume materials and/or inhibit movement of food and materials.
So, when politicians say they will bring down inflation, ask “How!?”
David Hart, Torrey
