Rising Inflation in America

by Thomas Blomgren

One of the major talking points over the past year has been rising inflation in the United States economy. Whether it be at the gas pump, grocery store, or in workplace wages, rising prices have touched just about every part of life. According to the Bureau of Labor Statistics, U.S. inflation increased at a greater annual rate in 2021 than any other 12-month period since 1982, creating a 39-year high. The consumer price-index rose 7% in December from the same month a year ago. This rise in prices can be attributed mostly to strong consumer demand paired with supply chain constraints and shortages. Rises in inflation affect consumers and companies in a multitude of ways. Large inflation gains erode the purchasing power of consumers in the marketplace. However, this rise in prices encourages people to spend and invest more in the short term, due to the lower value of holding cash. Then again, this spend-and-invest cycle will only accelerate inflation due to increased demand, creating a vicious cycle of rising prices. The rise in prices has not been felt equally across different industries. For instance, used auto prices have skyrocketed due to a semiconductor shortage that greatly limits the supply of new cars. Meanwhile, prices for services centered around education and medical care have risen just slightly. Also, rising inflation has led to higher wages in the workplace. Having said that, the gains in wages are dulled by the effects of inflation. According to a CNBC article dated November 10, 2021, the average wage growth year over year through October 2021 was 4.9%. However, when accounting for inflation, real hourly wages have decreased by 1.2% in that same time period. Currently, the Federal Reserve is discussing multiple interest rate increases in the next year aimed at slowing inflation, although it is unclear how these increases will affect the economy and the spending power of workers over the year to come.