First, what Is Inflation?

The most basic definition of inflation is a rise in prices. For example, a baseball cap that cost $17 two years ago may now cost $25, while a $5.99 Big Mac meal at McDonalds might be closer to $7.99 these days. Inflation means our overall cost of living is going up.

Prices for food, gas, household goods, etc. have gone up astronomically across the entire country this year. It has spread globally as well. The Federal Reserve aims for a target inflation rate of around 2% - but in 2022, inflation was rising at its fastest rate (well above 8%) in 40 years. Ouchhhhh!

Who's to Blame For the High Cost of Inflation

Well, here are two for certain:

#1 The COVID-19 Pandemic

The COVID-19 pandemic is a major culprit. One of the most visible impacts of the coronavirus pandemic has been the strain on the global supply chain, with consumers noticing certain goods are harder to find on the shelves at their local stores.

In a standard supply chain case, materials are sent to factories where goods are manufactured. Those products are then shipped to warehouses for storage and then to retailers or customers. Many businesses are still struggling with supply issues created by staff shortages. 

COVID lockdowns disrupted global supply chains, especially in CHina and Asia. Global shipping saw a rapid rise in prices because there was a shortage of transport shipping in the ports where they were needed.

Many sectors laid off staff and cut back services. This was especially true in leisure, airlines and hospitality. With that, there was a sharp rise in personal savings, as consumers reduced spending (also at home, there were less things to spend on). When the economy and society re-opened, many households had large savings they could now spend. That created an inflation problem. 

#2 Government Stimulus Payments

Yes, that’s correct -stimulus payments. Thanks to government stimulus payments from the CARES Act under President Donald Trump in 2020 and the American Rescue Plan Act in 2021 under President Joe Biden, it’s often been suggested that the stimulus played a major part in the rise of inflation.

Thanks to a $5 trillion barrel of money transferred from the government back to the people during 2020-2021, Americans stayed afloat during the pandemic. It had to be done!

Namely, it reduced poverty - especially during the early days of the pandemic. Those payments moved 11.7 million people out of poverty in 2020.

The stimulus checks also cushioned workers during one of the worst economic crisis in modern history. It helped the economy bounce back in record time also - as the unemployment rate was at a disastrous 14.7%. But two years later, it has almost returned to its pre-pandemic levels. 

However, there is also evidence that the last rounds of stimulus - the checks that went out in December 2020 and March 2021 - may actually have been too big. 

So, here are my two reasons that inflation has gotten out of hand. Tell me, what do you think caused this high-inflation environment we’re in?