For the past two years, inflation has been skyrocketing in the United States, and many people are struggling to figure out why. In its simplest terms, inflation is an increase in prices over time which leads to a decrease in purchasing power for much of the population over time. However, it’s much more complicated than that as there are an infinite amount of reasons for inflation to fluctuate so much.
The root cause of inflation here in the U.S. can be traced back to an increase in the amount of money that is being passed around. Additionally, new money can be released into our system by the Federal Reserve. According to Investopedia, printing, devaluing, and loaning new money is a tool that can increase the on-hand cash the Federal Reserve has access to. In addition to an increase in the amount of money, issues across the world can also affect inflation. A notable example of this impact is the war between Russia and Ukraine on skyrocketing gas prices.
That is why inflation can be so difficult to stop. The reason why inflation is such a problem here in the U.S. is because it creates a vicious cycle where economic growth artificially inflates and the only antidote is to decrease spending, but many people are unwilling to stop spending more money when the economy appears to be very active. Inflation also means that the cost of living has gone up, which means that 50 dollars, for example, will not buy as many commodities like food or electricity as it used to. This has hit a lot of low income families especially hard all around the country since everything is so much more expensive.
There are many different ways a country can tackle inflation. While I’m not an economist or even an economics major, a popular method of controlling inflation as of late has been contractionary monetary policy. This lowers inflation by increasing interest rates. It slows down the rate of economic growth by making credit more expensive which lowers how much businesses and consumers are spending. This seems to be the method that has been working somewhat but the U.S. has yet to see the levels of inflation slow down to its two percent target. As of right now it sounds like many families in the U.S. are going to have to continue to adapt to the higher prices for the time being.
Matt Degnan is from St. Paul, Minn.
His major is undeclared.
