The American newspaper "The New YorkTimes" published an introductory article on inflation in the United States, which included shedding light on the concept of inflation, its causes, results, and how to slow it down.
The author of the article, Gina Smyalek, said at the beginning of the article that inflation is a difficult problem, and it has some clear causes and consequences, and policy makers are working to overcome it.
What is inflation?
Inflation is the loss of purchasing power over time, which means that the amount of money you have today will not buy you what it bought yesterday.
It is usually expressed as the annual change in the prices of everyday goods and services, such as: food, furniture, clothing, transportation, and toys.
The writer pointed out that US consumer prices jumped 8.6% over the year to last May, the fastest rate of increase in 4 decades.
How is inflation measured?
Economists and policy makers keep a close eye on two key measures of inflation in America: the Consumer Price Index and the Personal Consumption Expenditure Index.
The CPI shows how much consumers pay for the things they buy, making it the first clear glimpse into the country of what inflation has done in the previous month.
The data is also used to arrive at the personal consumption expenditures index.
The personal consumption expenditures index, released monthly, tracks the actual cost of things.
For example, the cost of health care procedures is calculated even when the government and insurance help pay for it.
This indicator tends to be less volatile, and is the indicator that the US Federal Reserve looks at when it tries to average 2% inflation over time.
As of last April, this indicator rose 6.3% compared to the previous year;
Which is more than 3 times the central bank target.
The Consumer Price Index shows how much consumers pay for the things they buy (Getty Images)
close control
Fed officials are paying close attention to changes in inflation from month to month to get a sense of its momentum.
Policy makers are also particularly in agreement with the so-called core inflation measure, which excludes food and fuel prices.
While groceries and gas make up a large part of household budgets, they also jump in prices in response to changes in global supply.
As a result, they do not give a clear reading of the underlying inflationary pressures in the economy, which the Fed thinks it can do about it.
“I will look forward to seeing a consistent series of decelerating monthly prints of core inflation before I feel more confident that we are on the kind of inflation trajectory that will bring us back to the 2% target,” Fed Vice Chair Liel Brainard, one of his key public speakers, said during a TV interview last week. ".
What causes inflation?
Inflation can be the result of high consumer demand, but it can also rise and fall based on developments unrelated to economic conditions, such as limited oil production and supply chain problems.
Is inflation bad?
This depends on the circumstances;
Rapid price increases create a problem, but moderate price gains can lead to higher wages and job growth.
How does inflation affect the poor?
Inflation can be particularly difficult to sustain for poor families because they spend a greater part of their budgets on necessities such as food, housing and gas.
Does inflation affect the stock market?
Rapid inflation usually causes problems for stocks;
Financial assets in general have historically underperformed during periods of high inflation, while tangible assets such as homes have maintained their value better.
As a result, the Federal Reserve is raising interest rates to slow demand and lower wages and price growth.
The central bank's policy response means that the economy is definitely heading for a slowdown.
Indeed, higher borrowing costs are beginning to cool the housing market.
Inflation-driven consumer spending rises in the United States despite severe price pressures (Getty Images)
What drives inflation?
It may be useful to think about the causes of inflation in the United States currently, and these causes fall into 3 related groups:
Strong demand:
consumers are currently spending large sums;
Early in the pandemic, families made savings because they were stuck at home, government support that lasted until 2021 helped them save more money, and now people are taking jobs and earning wage increases.
All of these factors have home bank accounts lined up, enabling families to spend on everything from backyard grills and beach vacations to cars and kitchen tables.
Too few goods:
Because demand outpaced the supply of goods, companies were able to charge more fees without losing customers.
And recent shutdowns in China have exacerbated supply chain crises.
Meanwhile, the war in Ukraine is shrinking the world's supplies of food and fuel, driving up overall inflation and fueling the cost of other products and services.
Service sector pressures:
Recently, people have moved away from spending on things and back in spending on activities, and inflation is rising in service industries.
Rents are also rising rapidly as Americans compete for a limited supply of apartments, restaurant bills are rising as food and labor costs rise, and airline tickets and hotel rooms cost more because people are eager to travel and fuel and labor are more expensive.
What role does corporate greed play?
You may be wondering:
What role does corporate greed play in all of this?
Companies have been making extraordinarily large profits because they are raising prices more than needed to cover the increased costs, and they are able to do so in part because demand is so strong.
There are few easy answers or painless solutions when it comes to inflation, which has jumped around the world as a lack of supply collides with surging consumer demand.
It is difficult to predict today how long prices will continue to rise, and the main tool to combat it is raising interest rates, which calm inflation by slowing the potentially sharp economy.
It seems unlikely that rapid inflation will go away on its own, as wages are increasing much faster than usual;
This means that unless companies become more efficient at breakneck speed;
It will probably try to keep increasing prices to cover labor costs.