Understanding inflation, its causes and how we can keep it in checkEbenezer Idowu, Jr. Staff Writer Inflation. What comes to mind when you hear that word? Chances are, you’ve looked in the news and seen alarmingly high inflation levels which do not seem to be getting much better. You may have gone grocery shopping and noticed that the price of milk, eggs or fruits is higher than it used to be. Or maybe you’ve observed an ever-increasing bill when you fill up your gas which has added pressure on your already strained finances. But have you ever wondered why this is happening, or what even causes inflation? Read to the end to find out. What is inflation? According to Investopedia, inflation is “a rise in prices, which can be translated as the decline of purchasing power over time.” In other words, inflation is when prices go up, resulting in decreased purchasing power. This means that a unit of currency (e.g., dollar) cannot buy as many goods and services as it used to. For example, if the price of a carton of eggs increases from $1.90 to $2.79, it means that $1.90 is worth less than it used to and can no longer buy you the eggs. You need more money to purchase the eggs, hence the price increase. What causes inflation? The main cause of inflation is an increase in the amount of currency in a nation. This can occur by way of demand-pull effect, cost-push effect or built-in inflation. Demand-pull effect inflation is when consumers have more money in their wallets, so they are willing to spend more. As a result, the demand of goods increases more quickly than the nation can meet that demand. This causes scarcity; the amount of goods produced is not enough to go around, so prices increase for the commodities that are available. The cost-push effect works in the opposite direction; it triggers inflation by channeling currency into a specific good, pushing the price of intermediate goods (products that are used to produce other products) higher. Finally, built-in inflation occurs when workers see inflation levels, predict they will increase and demand higher wages. Businesses must account for this extra expense in some way, so they increase the price of their goods or services. Why is inflation so high right now? Now that we’ve gotten through the boring stuff (thanks for sticking with me), let us get to the where-it-applies-to-me part. Why is inflation so high in America right now? The short answer is: it’s complicated. Conservatives immediately point accusing fingers at the federal government, blaming extravagant spending programs and incentives as the main driver of inflation. An element of truth rests in this position, as a good portion of the blame rests on the federal government. (You cannot pump trillions into the economy and get away with it.) However, there is more to America’s inflation than politicians with no financial planning strategies. COVID-19 caused millions of Americans to lose their jobs, leading former President Trump to sign a $5 trillion aid package for small businesses and unemployed citizens. That’s where the trillions of dollars I mentioned earlier started flowing into the economy. Businesses slowly started to reopen in the summer of that year, but unemployment levels stayed high until last year. To make matters worse, generous unemployment benefits decentivized work, leading to a crisis in the labor market. Businesses increased wages for the workers they did have, so consumer spending increased. The Guardian recounts that “people wanted new homes, restaurant meals, appliances and furniture.” Remember the demand-pull inflation effect I mentioned earlier? Due to supply chain problems (many likely caused by the scarce labor market), producers could not get their products our fast enough. As a result, prices rose, reducing the purchasing power of the money people had more of due to higher wages, which started the inflation in the first place. Furthermore, Russia’s invasion of Ukraine caused even more supply problems (embargos, blowing up of the Nord Stream Pipeline), exacerbating the supply chain crisis. So, in summary, a combination of reckless government spending, unemployment, labor market and supply chain crises, higher wages and the invasion of a peaceful, democratic nation by a cruel tyrant caused higher-than-ever inflation levels in the United States. What are the potential impacts of inflation if left unchecked? Economists maintain that a good, healthy level of inflation can contribute to economic growth. That said, things can get out of hand (like they have in our country). Economic ruin often results when they do. This occurs in several ways. Firstly, inflation, especially if primarily caused by increased printing of money by the federal government, can become hyperinflation, which is when accelerated, uncontrollable price increases seize a nation, dragging it to the mire of economic stagnation, unemployment and ultimately, a depression. The currency becomes worthless, and citizens must pay exorbitantly high prices for products and services, whereas their salary has not necessarily increased that quickly (assuming it has increased at all). But even if inflation levels do not reach hyperinflation, inflation raises different prices at different levels, distorting “relative prices, wages and rates of return,” shifting them away from economic equilibrium. This could even lead to recession, and that is not good for anyone. What can we do to stop inflation from getting out of hand? While individual citizens may not be able to do a lot to affect inflation directly (many factors control it, after all), you can influence those who have direct control over inflation. I am not talking about the Federal Reserve here; I am talking about politicians who often propose brash spending plans and government benefits with no thought to the economic impacts this could entail down the road. A foundational understanding of economics is an excellent starting point. Once you have the knowledge, it would be wise to apply it to the ballot box. Voting for politicians with a basic understanding of economics (so, no $20 billion spending plans) will go a long way. If you cannot vote (or it is not election time yet), you can hold politicians accountable by petitioning them to either oppose or drop an insane spending proposal. This is not about Democrat or Republican, liberal or conservative here; it’s about common sense. If we do sit back and do nothing or vote for politicians planning to spend millions we do not have, we will all face the consequences in the months and years to come. Editor’s note: Sources for this article include: “Inflation: What it is, How It Can Be Controlled, and Extreme Examples,” by Jason Fernando published on Sept. 13 in Investopedia.com; and “Why is U.S. Inflation so High and How Long Will It Last?” by Lauren Aratani published on July 13 in The Guardian.