Understanding the Recent Spike in US Inflation

Damaging the economic recovery of the US is the sudden rise in inflation.  The Consumer Price Index rose 6.8% in 2021. The CPI accounts for a basket of goods relevant to an average consumer, including housing, healthcare, and transportation.  Real estate markets all over the US are seeing a boom, healthcare costs are up 6% from last year, and used cars sales have risen a dramatic 29.7%.  The higher cost of living has driven real wages down 1.1% despite a year of wage gains.

What’s causing inflation in the US?  There are two major theories: cost-push and demand-pull.  Cost-push refers to the rise in production costs for the makers of goods, such as increased demand for timber in today’s market.  Supply chain breakdowns are also driving up shipping costs.  When producers face these cost increases, they pass them onto consumers in the form of higher prices.  Demand-pull suggests that consumers are demanding more goods than are available, causing the price of a limited supply to increase.  After pandemic lockdowns ended in the US, both theories seem to play a role in the current economic situation.  Investors need to seek higher returns to hold onto their money’s value.

Why is Inflation so High?
Source: Expensivity

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