In the US and worldwide, the cost of everyday goods has skyrocketed. Gas prices have gone up, housing costs have doubled, and food in the grocery store is unfathomably expensive. Many credit inflation as the driving factor of this massive cost increase, but what causes inflation to accelerate? There are a couple of factors analysts have hinted at that put the US in this particular situation.
Josh Bivens, director of research for the Economic Policy Institute, was recently interviewed at NPR about what catalyzed the US’s recent financial crisis. One of the first industries to look at when discussing inflation is Big Oil and the gasoline industry. Since Russia is a humungous exporter of crude oil, it’s easy to assume that sanctions put on the Eastern country heightened demand and skyrocketed prices. But, the United States isn’t destitute of oil. What’s more likely is that gas companies took advantage of the dire situation in Europe and raised their prices to unbearable degrees.
Even before the invasion, gas companies were making record profits, making historically unheard-of numbers at the end of 2021. Bivens agreed that it wasn’t scarcity or elevated manufacturing costs that influenced inflation but an intentional strategy for gas companies wanting to increase their profit margins. Because the oil industry has experienced a production cost rise, they’ve been able to double that expense for consumers unreasonably, which is often known as price gouging. Now, the oil industry executives are making record amounts of revenue from this gouging, accelerating US inflation and putting massive financial strain on the average citizen.
The invasion of Ukraine by Russia is another facet of the global inflation problem. Once the attack started, specific manufacturing sites in the country had to shut down. Countries around the world began putting sanctions on Russia as a consequence of the war, which disrupted supply chains for fertilizer and wheat. With both Russia and Ukraine being huge exporters of farming necessities, heightened demand for these products increased their prices. The increased demand for most items crucial to growing food has made every sequential product more expensive this year.
There is a definite combination of problems that have accelerated inflation. Some believe inflation occurred due to pandemic stimulus checks and minimum wage increases, which is economically untrue. Since the pandemic began, businesses had to restructure their pay and benefits to incentivize workers to return to their positions. Many refused to risk in-person work if the payment wasn’t as good as the government benefits. Some think that increased pay for employees in the service or retail industry has caused the cost of living to grow, but Bivens believes minimum wage bumps help stop inflation. Bivens stated that when wage increase is beneath the US inflation, it helps put an “anchor” on the economic spiral.
Inflation is one of those hot topics for which many believe they have the answer. Unfortunately, some people look to struggling demographics, like minimum-wage workers, as the problem for our current economic situation. But in fact, money-hungry executives, a pandemic, and an ongoing war are the real culprits for the supply chain interruptions and cost acceleration.