(WETM) – The past year was full of headlines about the tense economy, and Americans saw prices of everything on the rise just about everywhere.
In 2022, inflation reached levels not seen in decades, prompting the Federal Reserve to step in and take action to try to curb it. Specifically, the Fed has been raising some interest rates in hopes of slowing things down.
Americans, of course, have noticed. Google reported that in the week prior to the writing of this article, several questions about inflation spiked in search volume, and in 2022, searches for “inflation” reached an all-time high.
What is inflation, exactly, and what causes it?
Simply put, inflation is the general increase in the cost of goods over time, as explained by the Federal Reserve. This happens naturally over time, but in the last year, it’s had a negative connotation tied to it as Americans felt the pinch on their wallets pretty much anytime they tried to buy something.
Since inflation has such a broad definition that applies to the entire economy, it’s hard to pinpoint it’s exact causes, especially with the tumultuous couple of years we’ve had with the COVID-19 pandemic.
The Associated Press explains that when the world jumped out of the pandemic-induced recession in 2020, demand started to outpace supply, helping drive up costs. Then supply chain issues drove them up even more.
When Americans got stimulus checks, they started to spend more, feeding into the cycle. Then Russia’s invasion of Ukraine added fuel to the fire.
Then, the AP says, Americans started to spend more on services rather than just goods, driving service prices up as well. And spenders seem willing to continue paying higher prices.
So in general, inflation is caused by a lot of spending on goods and services that is faster than the ability to produce and supply those goods and services.
What about “stagflation”?
Over the summer, when the economy shrank for a bit, some economists started to talk about the 1970’s-era word “stagflation” again. This phenomenon is essentially a compounding problem on top of regular inflation, caused by slow economic growth, high inflation, and high unemployment, a nasty combination.
When will inflation go down?
Each month, the federal government releases information on how consumer prices compare, in general, to the same month a year before. While inflation peaked in June 2022, it seems the Fed’s efforts have started to slowly pay off.
In December 2022, prices were 6.5% higher than Dec. 2021, marking the sixth consecutive month that the percentage has gone down from its June 2022 peak of 9.1%.
Prices are still high, no doubt, but the costs of some things have decreased dramatically, such as gas.
Meanwhile, other goods are still sitting high and mighty—like eggs—indicating that getting rid of the crippling inflation will likely take some time.