Cause of Inflation: Highest in 40 Years


What’s causing high inflation in the USA, higher than in Europe and highest in the country since 1980s

  • The New York Times reports widespread dissatisfaction over the continuous rise in inflation. U.S. consumers have not seen prices soar this high since the early 1980s and “Green policies” could be one reason.
  • Inflation is now happening worldwide and economic stimlus have helped the economy, except that in the USA, the amount spent was the highest in the world.
  • President Biden’s stimulus package was a “small contributor” to the high inflation. There are others like wage increase coupled with low employee turnouts that affect the business cycle.

Inflation up 7.5% in January 2022

Used cars – 40.5%
Gasoline – 39.9%
Energy prices – 27%
Electricity – 14%
New cars – 12.2%
Housing cost – 4.4%

Three probable causes of high inflation in the USA in 2022

1. Gas price increase because of “Green economics”

In November 2021, a Newsweek report warned President Biden that shutting down pipelines could send U.S. prices surging. Stricter state policies and progressive laws can contribute to the disruption.

In January 2022, gas prices began to surge after Keystone XL was halted after U.S. President Joe Biden this year revoked a critical permit needed for a U.S. stretch of the 1,200-mile project.

As gas price increases, so do commodities

Financial journalist Charles V Payne tweeted, “Biden declared war on fossil fuel and took swift action while threatening more. Oil projects can’t find funding, and portfolio managers shunning stocks. When supply can’t meet demand, prices rise.”


2. Stimulus package spending

In a nutshell, economic stimulus is cash (among other incentives) given to taxpayers by the government. Doing so encourages consumer spending that helps the economy move in a full circle.

Most people were out of work during the pandemic and had limited spending power. President Biden’s economic stimulus helped many families.

Helping the economy by printing more money

When spending on goods and services increases, businesses gear up production and hire more workers, increasing production and GDP. However, what’s happening is more complicated than that.

One problem could be the trillions of dollars spent, which inherently was a deficit to the already ballooning debt of the country.

The result is inflation or hyperinflation when a country (like Columbia) prints more fiat currency (without real value) to give people cash and other benefits.

Small contributor to current inflation

Economists still argue over the usefulness of coordinated economic stimulus, with some claiming that it can do more harm than short-term good in the long run. [Investopedia]

Some experts suggest the 2022 inflation was a direct cause of Biden’s macroeconomic, fiscal packages. However, U.S. Treasury Secretary Yellen said it was a “small contributor” to current inflation. [Reuters]


3. Wage increase debate

In 2021, Democrats introduced the “Raise the Wage Act of 2021” to increase the federal minimum wage to $15 an hour by 2025. In 2021, a few states like California implemented wage hikes.

However, the increase is not yet the full scale. The problem of people unwilling to work affects businesses—disrupting the economic and business cycle.

There’s a debate if raising the minimum wage cause inflation. Some economists say it does not, while others explain that manufacturers will have to increase their prices as wages rise. [Cost-Push Inflation]

Even after the pandemic lockdown, there are more job vacancies than there are available workers. But employees with high wages still need to be paid. Thus, employers passed these costs on to consumers by charging higher prices, which fuels the worsening inflation.

“Shrinkflation” in 2022

Shrinkflation is a sneaky way to make a product retain its sticker price during inflation by reducing the size or portion of a product.

For example, Chobani Yogurt reduced its portion to 15% in January 2022. Likewise, Milky Way’s weight was down from 11.24 oz. to $10.65 oz. Detergents like Gain used to be 165 fl. oz., down to 154. Crest toothpaste was 4.1 oz. reduced to 3.8 oz., and cereals like Cocoa Puffs used to be 19.3 oz but are now sold at 18.1 oz. [Fox Business]


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