Inflation explained: It seems everything is more expensive than 5 years ago. Here's why.
Sep. 1—As she walked the aisles of Walmart in
"Is it going to go down? Is it going to keep rising?" Vislosky said. "What's normal now?"
Western Pennsylvanians have lots of questions about inflation, but they know how it's affecting their household, especially when it comes to their grocery bills.
Inflation and the economy at large are game-changing topics in this year's presidential election between Democrat
Economists say disruptions caused by covid-19, the war in
Grocery prices are about 20% higher than they were five years ago. Rent has jumped by 22% over that period. Fuel is up 25%. More than 75 years of economic data collected by the
In the coming weeks, TribLive will examine 10 core categories of goods and services to uncover industry-specific sources of inflation, the impact of high prices and whether consumers can expect relief.
What is inflation?
Simply put, inflation is when more prices are rising than falling.
This happens when there's a mismatch of supply and demand, said
"When demand is strong in the economy, prices are going to go up," he said. "Supply in the economy can increase, and it increases over time by workers being able to produce more things. But if demand is increasing more quickly than supply, prices go up."
Consumer goods tend to come to mind first when discussing inflation, but expenses such as health care, housing and travel make up a larger portion of average household spending, Faucher said.
A decrease in quantity without a corresponding price reduction — or "shrinkflation" — also counts as inflation, Faucher said. Think of a bag of potato chips with fewer chips, but at the same price as before.
"Greedflation" refers to the idea that corporations unjustly use inflation as an excuse to widen profit margins. Experts say this has played only a minor role in soaring prices.
What caused recent inflation?
A mix of supply and demand factors during the covid pandemic created the inflationary spiral that started in early 2021, peaked about a year and a half later and has almost fully dissipated since, economists say.
The
According to
Restaurants and grocery stores also have faced tough times, in no small part because of the ongoing Russian invasion of
Labor shortages also have made some foods harder to come by.
"We have a horrendous problem getting people to work at the farm level, at the processing level and at the retail level," Ernst said.
Avian flu outbreaks have further sapped egg and poultry supplies. The government requires entire flocks to be culled when the virus is detected on a farm.
Consumer demand was strengthened by economic assistance provided by the federal government, such as the three rounds of stimulus checks issued in 2020 and '21, Faucher said. Low interest rates also allowed consumers to load up their credit cards.
That meant producers "weren't always able to keep up," he said, and that led to rising prices.
How is inflation measured?
The Consumer Price Index is the most frequently cited of several inflation indexes published by the government.
It's based on the spending of urban consumers — defined by the
CPI readings most often are expressed as a percentage change compared with the same time last year. The July reading, for example, shows a 2.9% increase in prices compared with
Pearce said the Consumer Price Index's popularity stems from being published earlier in the month than other indexes, though it's not necessarily the most complete. For instance, the Personal Consumption Expenditures Price Index pulls in prices from all geographic areas and includes some nonprofit institutions as consumers.
The covid-era spike in the CPI peaked in
Pearce emphasized the CPI is more useful for capturing trends nationally than impacts on individuals. Workers with long commutes, for example, are more sensitive to gas prices than those who use public transit.
"One person's experience is going to be different than 330 million people's experiences," Pearce said.
Is inflation all that bad?
The
Known as "the Fed," the
Fed Chair
Zero or near-zero percent interest rates were in place following the Great Recession in the late 2000s. They ticked up in the late 2010s, plummeted again at the onset of covid and finally climbed to over 5% to fight inflation.
"The classic pushback would be, if you want stable prices, why not target inflation of 0%?" Pearce said. "And the reason is, you'd get closer to a situation where you'd get deflation, which would be difficult because the Fed can't set interest rates below 0%."
Pearce said deflation hurts debtors the most. When prices drop, so do wages, but debts stay the same.
Everyone feels the squeeze when prices go up quickly, said
"If you have a lot of your income going to goods and services, then you're impacted in a way we all understand. Your purchasing power has gone down," Ales said. "If you have lots of accumulated wealth, then the value of that accumulated wealth is eroded by prices going up."
Will prices come down?
Since
Each economist interviewed by TribLive said they expect prices to climb but more slowly for the foreseeable future. Ales noted that if the Fed wants 2% inflation, "the expectation should be that prices will keep growing at around 2%."
Prices sometimes drop in certain industries. At the onset of the pandemic, for instance, the cost of flights and fuel plummeted as people scrapped travel plans and stayed home.
Every once in a while, things get cheaper across the board. But consumers should prepare for prices to continually tick upward — and be careful what they wish for.
"Sometimes (prices fall), but that tends to be when the economy is doing very badly," Pearce said. "One way to get deflation in the economy and get prices down is to have a really big economic disaster."
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