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What Is Inflation and What Causes It?

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Inflation is the increase in the cost of goods and services over time. It becomes a problem when wages don’t keep up with the rising cost of things. In this video, Myles Bess investigates the current causes of inflation and how it impacts our lives in part 1 of this two-part series.

TEACHERS: Get your students in the discussion on KQED Learn, a safe place for middle and high school students to investigate controversial topics and share their voices. Click to see this video and lesson plan on KQED Learn.

What is inflation?

It’s the increase in the cost of goods & services over time. It’s measured by the Bureau of Labor Statistics using the Consumer Price Index (CPI)– which looks at the cost of a bunch of different items called a “basket of goods” They release monthly reports, so when people say inflation is at 8% this month, what they usually mean is that stuff on average costs about 8% more than it did the same time the previous year. The Federal Reserve sets policies to try to keep it around 2%.

Is inflation bad?


As of April 2022, inflation was around 8% and it becomes a problem when wages don’t keep up with the rising cost of things. According to a UPenn analysis, in 2021 wages for the lowest-paid workers did go up by about 6.5%. But the increase in those earnings didn’t keep up with inflation in 2021. Even middle-income earners’ wages had a hard time keeping up with rising costs.

What’s causing inflation?

There’s lots of debate about what’s causing the current inflation. But in general, economists tend to point to agree on a couple of things. The first is supply chain issues from shutdowns during the pandemic. World wide a lot of factories shut down, materials stopped being mined, and shipping companies reduced their schedules. This created bottlenecks making it harder for us to get stuff we wanted to buy. Meanwhile, a lot of us were stuck at home and started ordering stuff online so demand for things rose. Supply was low and demand was high so you get inflation. Our dependence on fossil fuels is another big driver of the inflation we are seeing. The U.S. is still very dependent on fossil fuels which are at the mercy of the volatile global oil market and influenced by things like geopolitics, financial downturns, and war. Currently, oil prices are super high, partly because of the war in Ukraine.

Did the Covid stimulus cause inflation?

There’s lots of debate among economists about this. But the Federal Reserve Bank of San Francisco did an analysis showing that both Trump and Biden’s stimulus plan could account for about 3 percentage points of the inflation we are seeing, but there’s a large margin of uncertainty around that number.

Is corporate greed responsible for inflation?

In certain markets– there are just a few companies that control a large portion of the market– which makes it easier for them to raise their prices because they have less competition. And now, they can use the excuse that inflation is making it more expensive for them to run their business, so they have to increase their prices. But there are some reports of some big companies raising their prices and reporting record profits– suggesting that they are raising their prices more than they really need to, and that contributes to inflation as well. Moral of the story: lots of different things are impacting inflation.


What’s Causing Inflation (NBC News)


In this article from NBC News by Phil McCausland, various economists weigh in on the various causes of the current rise of inflation.

The Inflation Hits Just Keep Coming, Raising Stakes for the Fed


This Wall Street Journal article by Nick Timiraos explores how the war in Ukraine impacts the US economy and how the federal reserve is responding.

Did Wages Keep Up with Inflation in 2021? (UPenn)


This analysis from the Wharton Business School of UPenn examines how wage earnings compare to the rise of inflation in 2021.

Revealed Top US Companies Raising Prices Even as Prices Surge (The Guardian)


This article by Tom Perkins in the Guardian analyzes how corporations have reported increased profits despite rising inflation because they have been passing on costs to consumers by raising prices on their goods and services.

Why Is US Inflation Higher Than In Other Countries (Federal Reserve Bank of San Francisco)


This analysis from the Federal Reserve Bank of San Francisco compares inflation rates between various countries and reveals that the US has increasingly outpaced inflation of other developed countries.

Why Oil Prices Matter to Global Economy Expert Explains (World Economic Forum)


In this article from the World Economic Forum by Amy White, an expert in the oil and gas industry explains how oil impacts global economies and inflation rates.


What Drives Crude Oil Prices (EIA)


How High is Inflation and What Causes It? What to Know


How I (and US Policy Makers) Got Inflation Wrong (Vox):


A Socialist Primer on Monetary Policy and Inflation (Jacobin)


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