Inflation in the U S.: What You Need to Know The New York Times

The latest CPI numbers come after the Labor Department reported the U.S. economy added 263,000 nonfarm jobs in November, exceeding economists’ expectations of 200,000 new jobs. The Labor Department reported U.S. wages were up 5.1% year over year in November, but rising prices are preventing many Americans from getting more mileage out of their growing paychecks. In the meantime, consumers forex moving average looking to save money at the pump should opt for a credit card that offers increased rewards when you pay for gas. The PenFed Platinum Rewards Visa Signature® Card may be a good choice, as it has no annual fee and offers 5X points on gas purchases at the pump and electrical vehicle charging stations. Note, however, that you must be a PenFed Credit Union member to apply.

The question is what to do about it in terms of antitrust and tax policy,” Silvers said. Some companies reap the rewards of inflation if they can charge more for their products as a result of a surge in demand for their goods. If the economy is performing well and housing demand is high, home-building companies can charge higher prices for selling homes. PPI measures inflation from the viewpoint of the producers; the average selling price they receive for their output over a period of time. Meanwhile, CPI measures prices from the standpoint of the consumer. Monetarists understand inflation to be caused by too many dollars chasing too few goods.

  1. As has been widely noted, there was a major displacement of spending away from the consumption of services, and in favor of the consumption of goods (durable and nondurable).
  2. Some companies reap the rewards of inflation if they can charge more for their products as a result of a surge in demand for their goods.
  3. The point of companies is to make money, so of course that’s what they’re doing right now, even with inflation.
  4. But it’s not like President Biden has a “stop inflation” button on his desk — which, if he did have one, he would definitely use.
  5. But they have held borrowing costs steady at that level since July — forgoing a final rate increase that they had previously predicted — and have signaled that they could cut interest rates several times this year.

Demand-pull inflation can be caused by strong consumer demand for a product or service. When there’s a surge in demand for a wide breadth of goods across an economy, their prices tend to increase. While this is not often a concern for short-term imbalances of supply and demand, sustained demand can reverberate in the economy and raise costs for other goods; the result is demand-pull inflation. The period from the mid-1960s through the early 1980s, sometimes called “The Great Inflation,” saw some of the highest rates of inflation, with a peak of 14.8 percent in 1980. To combat this inflation, the Federal Reserve raised interest rates to nearly 20 percent. Some economists attribute this episode partially to monetary policy mistakes rather than to other purported causes, such as high oil prices.

The CPI is broken down by regions and is reported for the country as a whole. The Personal Consumption Expenditures (PCE) price index—published by the US government’s Bureau of Economic Analysis—takes into account a broader range of consumers’ expenditures, including healthcare. Consumer demand is only going to increase through the holiday season and beyond. Bottlenecks have piled up all across Asia, putting great strains on the capacity of supply chains to deliver in a timely fashion. And severe global shortages of drivers and other workers are making it difficult to expand capacity or fix other problems plaguing the supply chains, so they can’t break free of the thick mud they’re in. “So it means, on the one hand, workers’ real wages, their inflation-adjusted wages, they’re actually going down,” he said.

Expansionary Fiscal and Monetary Policy

Homeowners with fixed-rate mortgages benefit from inflation because is discounts the present value of their future mortgage payments. As housing prices rise as a result of inflation, home equity increases. Finally, homeowners who rent out their homes can increase rents with inflation. Since inflation reduces purchasing power, consumers represent the primary group who stand to lose when prices rise. That’s because their money doesn’t go nearly as far and allows them a limited number of goods and services they can purchase.

Elevated inflation discourages saving since it erodes the purchasing power of the savings over time. That prospect can encourage consumers to spend and businesses to invest. If annual inflation subsequently rises to 10%, the annual decline in your inflation-adjusted loan balance will outweigh your interest costs.

Inflation basics, explained

On today’s show, we hear from an economist who says the federal government bears responsibility for our current inflation. And we’ll also hear why Federal Reserve Chairman Jerome Powell was so slow to respond to the threat of inflation. The risks that the packages would drive inflation were raised before they were passed, https://bigbostrade.com/ most notably by Harvard economist Larry Summers, a longtime Democratic policy adviser, as well as some Republicans. Oscar Jorda, senior policy adviser at the bank and one of the people who worked on the study, cautioned against reading too much into the exact percentages, but said the overall picture is clear.

Production capacity will get moving again, demand will cool off, maybe some necessary investments will be made. There are no easy answers as to how to address rising inflation or quick fixes that will make this entire episode come to an end. Whichever economist or expert or policymaker you ask to explain the current inflation story to you is going to tell you something slightly different. I asked a bunch of economists over the past couple of weeks what was causing inflation and how to fix it. Most kind of laughed for a second before launching into their cases, acknowledging the full answer is, to a certain extent, ¯\_(ツ)_/¯.


The New York Federal Reserve has recently developed a measure of supply chain stress. Physical supply chains have ramified enormously, in scale and geographical dispersion (i.e., globalization). The example of the moment is the semiconductor industry, which comprises a vast eco-system with tens of thousands of critical or near-critical suppliers, reaching across the entire world.

The Labor Department says that after accounting for higher consumer prices, hourly earnings for private-sector employees fell 3.6 percent last month from a year earlier, the 15th straight drop. Climbing oil prices, which translate to climbing gas prices, are also contributing to inflation. Even before the pandemic, energy and gas prices were on the rise, but now, the situation with Russia stands to make things worse. Russia doesn’t have all the world’s oil, but it has enough of it to make a difference, in the US somewhat and more so in Europe.

Economists explain why Americans feel inflation, economy are much, much worse than they actually are

The Biden administration, however, is adamant that the American Rescue Plan Act has not driven inflation. Instead it points to the supply chain struggles and corporations independently driving up prices. This is particularly true of energy commodities that tend to continue to outperform.

When inflation runs rampant, governments generally raise interest rates, reduce the amount of money banks must have on reserve, and cut back on the money supply. Just as expansionary fiscal policy can spur inflation, so too can loose monetary policy. Expansionary monetary policy by central banks can lower interest rates. Central banks like the Federal Reserve can lower the cost for banks to lend, which allows banks to lend more money to businesses and consumers. The increase in money available throughout the economy leads to more spending and demand for goods and services.

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