(USNewsMag.com) – The COVID-19 pandemic and subsequent government spending have not been kind to the economy in recent months. Inflation has skyrocketed, causing serious concern over whether our economy can sustain such a pace. December brought a 7% increase, breaking records to become the highest rate witnessed since 1982.
On Wednesday, January 12, the Labor Department released its Consumer Price Index (CPI) report. Statistics within show the price index climbed by 5.5% in the 12-month period following December 2020. This is bad news for businesses and the government, but bodes poorly for consumers who are stuck paying higher prices across the board.
Reason for Inflation Increase
In order to address inflation, it’s important to identify the underlying causes. The COVID-19 pandemic, lockdowns and government spending in the form of economic stimulus payments and protection programs undoubtedly contribute to the problem. However, supply chain issues and shortages are also largely to blame.
With more demand and less supply, businesses are forced to increase prices on fundamentals. That’s hitting consumers right in their pocketbooks.
The most heavily affected industries include used cars, which soared by 37.3% throughout 2021, and furniture, which increased by 17.3% in the same period.
The hardest hits for most average consumers came through at the grocery stores and gas pumps. Food shortages and empty shelves are leading to increased prices and apologies, while slower oil production sent gas prices soaring last year.
What Can We Do?
When inflation soared out of control in 1982, America experienced much different after-effects. Rather than increasing, inflation and interest rates dropped dramatically, a result of the Fed drastically raising interest rates in 1980 and the economy rebounding in the wake of a recession.
Today, the Fed is looking to increase interest rates again. Federal Reserve Bank of St. Louis President James Bullard says there could be four increases in 2022 alone, with subsequent increases through 2024. The end goal is to get the inflation rate down to around 2%; that’s where it hovered for years before the pandemic ravaged the world. Bullard is calling for the Fed to “make the first move in March,” which he believes will give it some wiggle room to help put the country in better shape.
Economists also believe supply and demand will normalize as the supply chain issues and bottlenecks clear. This effect should result in a drop and far more ideal consumer index prices. However, the Omicron variant is currently wreaking havoc on the US; its far-reaching impacts are difficult to predict.
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