What Is Happening To Inflation In The US And Why?

July 6, 2022

Many people worldwide are seeing the impacts of inflation, and the US is no exception. Inflation is continuing to rise and now more than ever before people are concerned about the prospect of a cost of living crisis on a global scale. US inflation has now stayed at a 40-year high, meaning the price of everyday necessities is at the highest the country has seen in the last four decades.

Why is the cost of living so high?

The cost of living has skyrocketed in the US for multiple reasons. Firstly, the prices were seen to massively increase towards the end of the pandemic due to an increase in demand and a struggle to maintain supply on behalf of many producers.

As the pandemic drew to an end, many individuals had additional money that they had saved due to a large period of economic activity. This led to an increase in spending which many organizations were not prepared for, causing prices to increase.

In addition to this, during the pandemic the US government provided a lot of economic support to those struggling financially. They provided direct cheques to households in order to help families support themselves during a time when many couldn’t work.

The economic support provided in the US and in other countries has been a part of the cause of the inflationary pressure being faced by various countries (source: Proper Finance), with quantitative easing and money printing exacerbating the problems caused by the pent up demand immediately post-covid.

Consequently, products such as furniture, cars and electronics saw a very large increase in orders, as shoppers redirected their money to purchase necessities instead of traveling or socializing.

Businesses consequently raised their prices as they saw a lack of supply of their products, but an unexpected and quite increased demand. The risk that this economic aid would drive inflation was made clear to the government before it was granted, meaning the US was aware of the possibility of inflation after the pandemic.

The UN’s Food and Agriculture Organization (FAO), which tracks prices of products which are traded on a global scale, has reported an increase of 12.6% in the prices of products sold in the US between the months of February and March. This has meant that prices have reached an all time high since the inception of the FAO during the 1990s.

Slowly but surely though, as inflation is starting to bite, more people are turning to short term loans like payday loans and cash advances.

Has the war in Ukraine affected the cost of living?

The cereal price index which is also tracked by the Food and Agriculture Organization has also been seen to rise by a larger amount again, of 17.9%. This is reflective of a huge increase in the prices of wheat and coarse grains worldwide, with Ukraine previously being one of the world’s largest exporters of wheat.

In addition to Russia’s invasion of Ukraine meaning wheat prices have risen due to alternative providers struggling to maintain demand, prices of other products have also been seen to skyrocket. Many Western countries including the United States, the United Kingdom and now all those part of the European Union have placed bans on the imports of Russian oil in an attempt to aid Ukraine.

This ban has already taken place in the US, and the UK and the EU are set to have completely alternative oil providers by the end of 2022.

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