What is Inflation – Learn How it Affects You

Oh, inflation.

A word no one likes unless you’re a hot air balloon. An economic term that makes your wallet tremble and your purse gasp. A serious problem that has made local news stations coin the terms shrink-flation, gas-flation, booze-flation, milk-flation, rent-flation, and more to describe how America and the world have experienced the highest inflation in the last 40 years.

In the last year alone, food has gone up 10.4%, electricity 13.7%, and gasoline a whopping 59.9%. Many companies have also dealt with inflation by decreasing the quantity of each product sold. For example, during the pandemic, Gatorade changed its entire packaging and made its size go from 32oz to 28oz.

So in light of all these steep prices, smaller portions, and ridiculous bills, we wanted to talk about what inflation actually is, how it happens, and how it affects you.

What is Inflation?

Well, I’m glad you asked. Inflation, in its simplest terms, is the increase in the prices of goods and services. It can also be looked upon as the decrease of purchasing power in money. For example, a $.25 cent cup of coffee in 1970 is now $1.85 in 2022..his increase in price also raises the cost of living. Everything ranging from rent, college tuition, and daycare goes up because they are directly related to the cost of goods and services.

What Causes Inflation?

To give you a good understanding of how inflation happens, let me tell you a story.

When COVID hit, the US gave vital stimulus checks to Americans. This huge amount of aid made it so people (with and without jobs) had a massive surplus of cash.

With more money, fear of impending doom, and boredom from isolation, Americans started to buy more and more things than they used to. This made the demand for products go up. At the same time, supply chains from all over the world were halted due to the pandemic and later on the War in Ukraine — I still can’t seem to get my hands on a PS5.

With supply way down and demand way up, the price of everything shot to the skies. Now as the cost of living has gone up, many workers are demanding higher wages to be able to survive in the current economy. All of these factors have made inflation catapult into the econo-sphere — did I just make up a word?

In general, inflation is caused by three main factors:

Demand-Pull
When the demand for goods and services surpasses production ability.

Cost-Push
When production cost goes up and increases prices.

Built-In
When the price rise is matched with higher wages for employees, thus increasing production cost.

How Does This Affect Americans?

Right now, millions are feeling economic pains. Inflation on all products and services has put many people in debt or economic trouble. It has also forced many to go back to work when they were in retirement. Food banks are being flooded with new people who are struggling to put food on the table, and others have been forced to cancel vacations and pick up extra jobs.

To fight this inflation, the Federal Reserve has raised interest rates four times in 2022. Their logic is that with higher interest rates, demand will decrease, and people and businesses will not borrow as much money. The only problem with that is companies might decide to make layoffs to cover costs.

Hopefully, this inflation will go down, and we will not end up in a recession. It is our hope that help is provided to low-income families through different measures. Some ideas include offering robust child tax credits, rental assistance programs, and offer more work-from-home opportunities to reduce transportation costs.