What’s Driving the Rising Cost of Everything in the US?

Inflation has risen in recent months. In 2021, the US consumer price index rose to 6.8%, its fastest rate since 1982.

High rates of inflation mean that unless income rises at the same rate, people are generally worse off, which means that inflation can have a significant impact on small business,

To shed light on the causes of high inflation, Expensivity, an online money management resource, has put together an infographic that explores some of the causes and effects of high inflation.

Why is inflation so high?

According to the infographic, increases in the price of goods or services can occur due to increased demand for a product, increased cost of production, supply chain disruptions, and house price changes.

Ghalia explains how there are two main theories about rising inflation – cost-push inflation, in which higher costs drive up prices, and demand-pull inflation, where demand outweighs available products.

How is inflation measured?

The graph provides invaluable information on how to measure inflation. Inflation is measured by the Consumer Price Index (CPI). The CPI monitors a “basket of goods,” which includes housing, food and beverages, apparel, education, medicine, entertainment, transportation, and miscellaneous.

As Expensivity’s research hints, the Fed aims to keep inflation at 2% or less. In 2019, it was 2.3%, in 2020 it was 2020, and in 2021 inflation rose to 6.8%.

In 2021, prices were 15.53 times higher than the average prices in 1921. Compared to 2020, American consumers paid 29.7% more for used cars, 8.3% more for food, 6% more for health care, and 5.6% more for clothing. , and 4.6% more for energy.

What do you expect from persistent inflation?

The chart also explores what we can expect from continued inflation, which is important information small businesses should know.

Inflation can lead to higher wages. In 2021, average hourly wages rose 5.1%. It can also lead to a lower unemployment rate. In November 2021, the unemployment rate fell to 4.2%. Inflation can bring about changes in investment preferences, lower savings rates, higher interest rates, higher costs of living, and cost-of-living adjustments, which small businesses need to be aware of so that they can adjust their pricing and business model accordingly.

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