The Record Breaking Spike in Inflation
Wednesday, July 13th, 2022 marks the highest rate of inflation the United States has seen in more than four decades. Inflation is a term used in economics to describe an overall increase in prices for goods and services, and a decrease in the purchasing value of money. Inflation is calculated by the rate of a currency’s value falling to the general level of prices rising at the same time. Because there are so many different sectors where money is spent, inflation attempts to measure the overall price change in a range of industries and generates a single value to represent the value of money at the time. Money losing its purchasing value causes the cost of living to go up, as inflation affects all sectors, resulting in a halt in economic growth.
The role of inflation throughout the history of the United States economy can be seen in the increase in prices of everyday objects over time. A gallon of milk purchased in 1913 would cost about 36 cents on average. However, 100 years later in 2013 that same gallon of milk cost $3.53, almost 10 times higher than the original price. Milk has become easier to obtain over the years, so the reason for this drastic price increase is not due to lack of supply, but to inflation causing a gradual decrease in the value of money, and therefore causing goods to cost more.
Inflation and its counterpart deflation- which is the increase in the purchasing value of money- have been part of the United States economy since the founding of the country. It can be caused in a few different ways, but all causes are due to an increase in a country’s monetary supply. One way is by printing and giving away more money to citizens, which recently happened with the Biden Administration’s Stimulus plan in 2021. Another way is through legally reducing the value of money through legislation. The third is through rising the wages of workers when prices rise to meet cost of living prices. All three have contributed to the current inflation spike.
All individuals are impacted by inflation, as everyone needs to pay for goods and services. When the rate of inflation increases, costs in all sectors increase. Gas prices are up nearly 60%, reaching a record high last month with an average of $5 per gas gallon. The recent 9.1% increase in inflation makes life more expensive for everyone living in America, as grocery costs, transportation prices, and rent bills have all gone up. Interest rates have also gone up recently due to inflation.
As the situation develops regarding the recent peak inflation rates, economists and politicians have different theories. Speaker of the House Nancy Pelosi has stated she believes this 9.1% increase will be the peak, while economists at Goldman Sachs project underlying inflation pressure to stay consistently over the summer. Wage control, cutting spending, and increasing taxes are all methods to reduce inflation, but we never know how the economy will turn due to the current world events that affect it.