By Phu Styles
You don’t need anyone to tell you that inflation is currently a major problem. You feel it every time you buy groceries, fill up your gas tank, or eat at a restaurant. It isn’t your imagination that the buying power of your paychecks is shrinking, and you’re not the only one wondering when things will return to normal.
According to Truflation, an expert in real-time inflation information, the US is currently experiencing the highest inflation in 31 years. “The 2021 Thanksgiving dinner cost 14% more than last year. In November 2021, you paid 51% more for gas, 24% more for steak, 20% more for bacon, and 12% more for eggs.”
Unfortunately, we’re not out of the woods yet with the inflation madness we’ve all been experiencing. Due to a perfect storm of circumstances, prices will continue to soar in 2022. The following factors are contributing to the price increases.
To say that the pandemic was disruptive to people’s lives is the understatement of the decade. In what seemed like the blink of an eye, everyone’s world was turned upside down. It was as though a great big monkey wrench was thrown into the gears of our economy that resulted in shortages (remember the run on toilet paper?) and higher prices as demand for products changed.
Government incentives also contributed to the price increases. Although the pandemic recovery tax credits and payments were issued with the best of intentions, they created a powerful incentive for many to just stay home and collect benefits. Even if they wanted to work, many couldn’t with their jobs considered nonessential.
The pandemic also changed the way people buy things. Take the way we eat, for example. Prior to the Covid-19 outbreak, many people enjoyed eating out. After the pandemic hit, many started cooking at home more, which changed the supply chain by significantly increasing the demand for groceries and decreasing the demand for the restaurant industry.
Although the lockdowns and other factors that disrupted our economy are now thankfully a thing of the past, we are still dealing with the effects. The pandemic encouraged approximately 6-7 million people in the US alone to retire early, for example. Why risk being exposed to a potentially deadly virus when you can stay home and collect retirement benefits? This resulted in worker shortages as people either dropped out of the workforce or retrained for other careers.
A Strained Supply Chain
You probably saw them on the news last year—all of those massive container ships parked off of our coasts with nowhere to go. We don’t always give much thought to how the products we buy get to our stores, but we depend on the supply chain for all of those fully-stocked shelves that we enjoy. If there’s so much as a hiccup in the system, it can cause shortages, increased demand, and higher prices.
Why is the supply chain broken?
The pandemic had a lot to do with it. The supply chain was already strained before Covid-19, but the pandemic put just enough stress on the system to send the whole thing over the edge.
Just as many people either dropped out of the workforce or changed careers, the pandemic also caused a labor shortage in the shipping industry. There simply aren’t enough workers to load and unload all of the shipping containers and take care of other things.
The supply chain also includes the factories that make the products we use. Many factories were idled for months during the pandemic. This resulted in a backlog of orders that will take a long time to fill. The demand for the products they make has mostly remained the same, thus causing prices to spike as buyers compete for the limited inventory.
Money for Nothing isn’t just the name of a Dire Straits song. It’s also what happens when the government prints new money and injects it into the economy. When the supply of money increases, the purchasing power of the money you have goes down.
But, why would they do such a thing?
The Federal Reserve—that mysterious organization that works behind the scenes to manage the money supply—has been printing money at an unprecedented rate in an attempt to shore up our battered economy. In 2020 alone, The Federal Reserve injected approximately $3.5 trillion new dollars into the economy.
The purpose of all of this is to make it easier for people to obtain credit and to keep the markets running. Some speculate that the markets would have completely crashed without the injection of new money.
Although the Federal Reserve has taken its foot off of the money printing pedal to a certain degree, it is still injecting new money into the economy. As long as it continues to do so, the buying power of the dollar will continue to decline and prices will increase.
Workers all across the country have been demanding higher wages with a push for a $15 per hour minimum wage. Who can blame them? And many companies are raising wages to attract the best and the brightest to their companies.
But there is no magical money tree that businesses can use to pay their employees with. Many companies operate with razor-thin margins, like the restaurant and grocery industries. And when wages increase, the prices of the goods and services they offer must also increase to offset the extra expense.
If companies don’t raise prices to compensate for increased wages, they will either be forced to hire fewer people or close down some locations. It could also lead to an increase in automation as more stores elect to use self-checkout machines. Even restaurants are moving towards automation to deal with increasing wages with automated ordering kiosks and robots that prepare the food they sell.
During periods of high inflation, some businesses raise their prices just because everyone else is doing it. Knowing that many consumers expect higher prices, businesses simply give people what they are looking for.
Let’s say you own a restaurant, for example. If all of your competitors are raising their prices, you might keep your prices low at first. Eventually, you’re going to realize that you are missing out on the extra revenue that other businesses are enjoying. You might then give in and raise your prices to match your competitors.
With the increase in prices that we are currently seeing, many businesses are simply following the herd. We can expect the trend to continue throughout the year as various forces push prices higher and higher.
Get the Real Scoop on Inflation
Did you know the federal government often changes the methods it uses to report inflation so the official numbers are lower than the real numbers? It’s true. They do this for several reasons, one of which is to inspire confidence in the dollar. The US dollar is the world’s reserve currency, and they want the nations that hold dollars to continue to trust it.
But, what if you want to keep up with real inflation numbers?
That’s where Truflation comes in. It provides daily information on inflation that you can trust that is unbiased and reliable. The information is available for your DeFi product on-chain and uses a custom index that always delivers the true inflation rate.