Inflation in March was at its highest in the past 40 years. As of right now, it is currently too early to see if we are past the peak, but inflation has been going down and will hopefully continue to do so. This comes as a result of multiple issues around the world. COVID Stimulus has played a role in inflation, though how much it contributed is still debated among policymakers. Another factor in the high inflation rate would be a large spike in demand for commercial products in the US and the rest of the world in combination with supply not being able to keep up leading to a rise in prices. The US has also seen a rapid spike in job growth which further contributes to the issue which could lead to a wage-price spiral. Supply changes around the world are still not fully recovered from the pandemic either, and likely will not be back to what they were beforehand for some time. According to The Guardian, airfares have gone up by 40 percent in the past 3 months. The war in Ukraine has led to a large increase in gas prices as well as also interfering with the already struggling supply chain for products around the world.
From a New York Times survey of about 1900 people, the items that have been most impacted by rising prices are food and gasoline. The federal government has attempted to help mitigate gas prices by slowly releasing gasoline from a reserve that they have access to. These price increases are most likely due to the war in Ukraine contributing to ongoing supply chain problems. Another large market that has impacted many is the housing market. A Pew Research survey indicated that 49% of its respondents considered affordable housing to be a large problem in their area. In response to the recent inflation that the government has seen, the federal reserve is looking to raise interest rates to bring things back in line with the norm. However, increasing interest rates has the potential to send the US into an economic recession, and this looming threat has also hurt the stock market.
Credit: New York Times
The American people are divided on what truly caused the large spike in inflation. A survey from the New York Times shows that around 45 percent of respondents greatly blame rising prices on the pandemic and supply chain disruptions. About 30 percent of respondents also believe that relief plans and the Ukraine War contributed “a lot” to inflation. However, 30 percent of respondents on the survey also believed that those same factors did not factor into inflation at all. In my opinion, all 4 of the factors have played large roles in increasing prices and while it may not be ideal, overstimulating the economy would have been better than not stimulating enough. Other factors are relatively outside of the government’s control, and so not much can be done to lower inflation other than increasing interest rates. That being said, the risk of a recession has been hurting the stock market and if one were to actually occur, it would be even worse. Should the federal government raise interest rates, they should do so while airing on the side of caution and seeing if a lower increase can slow things down enough for the time being.
Questions:
1. What do you think the government should do to mitigate the effects of inflation?
2. Do you think that the government could have done a better job with stimulus and how it handled support packages concerning the possibility of inflation?
3. What do you notice most about rising prices in your day-to-day life?
Sources:
6 comments:
I think that it is absurd that 30% of the poll respondents do not believe the pandemic OR the Russian invasion of Ukraine contributed to the rise in inflation rates we see today. I think that this 30% actually portrays the ignorance of a portion of Americans towards current issues and politics in general. 30% of the poll respondents do not believe that the huge ban of Russian oil is not contributing to inflation, that the pandemic and all the regulations that came with it did not contribute to it?
So, while I (obviously, now) believe that both the pandemic and the Ukrainian war have contributed to the high inflation we see today, I believe that the poll you bring up in your post reveals a bigger problem.
I read quite an interesting article that was discussing investments in the times of inflation. It discussed food and suggested that due to the rather inelastic demand for food, even with inflation, big supermarket chains like Costco and Walmart are a rather good investment if their prices drop. However, seeing some of the latest earnings reports from retailers, especially that from Target, its clear that there are other factors affecting these markets. The earnings from Walmart and Target actually dropped, supposedly due to supply chain issues, and while revenue went up, possibly due to inflation, profit went down. So my guess (considering that I’m not an analyst by any means) is that these firms may pass on these higher costs of production to consumers, causing higher costs in the grocery store.
I think the poll should of included the president, I have a feeling that a lot of people would of blamed him based on the biden's america stickers ive seen around. though I guess having America's rescue plan is close to it but I think it was worded as its the president's fault a lot more people would agree. As for stimulus I think the government treid their best and I would give them an A+ for effort. I think however the government should of went back to the gold standard as well as adding silver to have a bimetal doller instead. Or really just put the doller backed on anything valuable (oil instead maybe?). a fiat money system is a way for the banks and corporations to keep Americans poor, and comitt unethical buisness practices that only benefit themselves. America should be where every American is a citizen under the consitution, and not some serf to wallstreet. Also if anyone has an extra 40 bucks, I need some gas money please send help.
I think that the price spikes specifically for gasoline for instance are very detrimental as they almost work like regressive taxes in the sense that they are terribly impacting lower income individuals disproportionately to higher income individuals - food prices going up adds a similar financial strain given that it is a universal good. The stimulus packages supplied by the government definitely had good intentions to provide temporary pandemic relief, however the increased spending has amongst other things (such as Ukraine and oil shortages) led to increased inflation which is now counteracting the stimulus unfortunately in a way. It does not seem however that people are aware of the impacts of various global affairs and other economic indicators/factors given the poll results.
I think a good step that the government can take to mitigate inflation is to continue to give out stimulus packages. I think that this did work well for temporary relief during the height of the Covid pandemic, and the government should continue programs like this. Although Amitai did bring up a good point saying that increased government spending could lead to more inflation, I think that ultimately this will still help Americans navigate through high gas and food prices.
I think the government is currently applying monetary policy in order to slow down the economy after fiscal spending, however due to factors happening outside the US with supply chain disruptions and the war in Ukraine it doesn’t seem to be working as intended. I think the effects of inflation are effecting lower income households the most, so something the government could do to mitigate the effects is to raise the minimum wage to keep up with inflation. I think the government did well with their stimulus package since it did help prevent a depression despite the difficulty in accurately predicting inflation. I noticed most restaurant prices have risen uniformly, meanwhile at grocery stores some items prices rise more than others. Local goods and services are more affected by COVID-19 and the American Rescue Plan, but since groceries are shipped from different sources it is probably more affected by Supply-Chain disruptions and the Ukraine War.
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