Everything you need to know about inflation and more News Article for Kids
You may have heard your parents to complain on rising costs of everything from groceries to gas, clothes, electronics and even cars. They are not wrong. From March 2021 to March 2022, consumer prices for food increased by 8.8%, while energy costs increased by 32%. The rate of price increase over a given period is called inflation.
What causes inflation?
Inflation can be caused by many factors. Sometimes this is due to the rising cost of raw materials, which makes the final product more Dear at manufacturing. It can also be caused by employees asking for higher wages. This is because companies usually compensate for increased costs by raising prices.
Current inflation would be the result of the repressed the demand for goods and services once consumers emerged from the worst of the COVID-19 pandemic. Some experts believe COVID-19 relief measures, which added $817 billion to U.S. households in 2020, also contributed to the surge in demand. Russia’s invasion of Ukraine, which resulted in a peak energy prices, has made matters worse.
“The main factor that pushed up inflation was extraordinarily high demand as consumers have more money in their bank accounts, lower interest rates to borrow at higher stock prices, and lots of money they have saved because they haven’t spent a lot in 2020,” Jason Furman, a Harvard University practice professor and former economic adviser to President Barack Obama, said.
“It was exacerbated more recently by things like rising oil prices due to [Russian President Vladimir] Putin’s invasion of Ukraine,” Furman added.
Is inflation always bad?
Slow and steady price increases, such as the United States and other countries have experienced for more than 20 years, are beneficial to the economy. They help silver keep its value. Low inflation also makes it easier for businesses to plan long-term spending, as they can accurately forecast costs in future years.
But the same is not true for the run away the inflation we are currently experiencing. Higher costs would make it increasingly difficult for people to buy the things they need and want. As sales slow, companies are forced to make tough decisions, like laying off employees and delaying expansion plans. Left unchecked, high inflation could lead to a strict economic downturn or recession.
What can the US government do to slow inflation?
The first step towards slowing down run away inflation is brake consumer demand. The US Federal Reserve is trying to do this by raising interest rates, which were cut to zero in 2020. Officials have so far announced two increases totaling 75 basis points. Five additional rate hikes are provide for this year. Higher interest rates make more Dear individuals and businesses to borrow money and reduce their expenses. They should, at least in the theory, reduce demand, slow the economy and bring inflation back to more normal levels.
“It is our job to ensure that the inflation of this unpleasant high nature does not get entrenched in the economy,” Fed Chairman Jerome H. Powell said at a news conference. conference on May 4, 2022. “The process to get there involves higher rates – higher mortgage higher interest rates and higher borrowing rates, things like that. It’s not gonna be pleasant neither, but in the end, everyone is better off – everyone. Particularly those on fixed incomes and at the lower end of income Distribution are better with stable prices.”
The Fed’s effort will take time. Meanwhile, the White House is trying to provide consumers immediate relief from high gasoline prices by releasing some of the strategic oil reserves. They can even temporarily stop collecting the federal gasoline tax. Officials also warned oil and gas companies not to keep prices artificially high for Americans. consumers.
“If gasoline retailers’ costs go down, they have to immediately passing those savings on to consumers,” former White House press secretary Jen Psaki told reporters on May 4, 2022. “The invasion of Ukraine and the volatility of the oil market is no excuse for excessive price hikes, increased profits, or any effort to exploit American consumers.”
Hope the combined will help reverse the rapid rise in inflation before it is too late.
Resources: Theeconomist.com, www.clevelandfed.org, abcnews.go.com, Qz.com