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The Causes of Rising Inflation

Prices across food, cars, and energy surged in the month of October 2021.

Last updated on March 13, 2022

In October of 2021, the United States saw a record increase in goods spanning many categories like food, gas, and cars. Overall prices increased 6.2% from last October and 0.9% from September 2021, the biggest annual increase and the sharpest one-month increase since the Great Recession (2007-2009). (Washington Post)

This surge came as demand for goods increased and supply chains could not keep up after a period of relative inactivity over the pandemic. However, it can be traced to a 49.6% in energy prices, making everything else much more expensive. The health care, furnishing, and recreation industries all saw massive increases in prices in a month. Essentially, all categories of the American economy observed some surge in price except for a select few like air travel and alcohol. (Washington Post)

The surge in prices has caused inflation, a topic that has been for the most part unvisited by politicians in the past, to be brought into the spotlight of discussion. This price increase is indicative of how the pandemic has resulted in more discussion regarding the issues of inflation.   

October’s surge in prices of goods made it difficult for Biden to pass his long-promised infrastructure bill, a project that will result in 2 trillion dollars worth of government spending. Senator Joe Manchin III, a Democrat who is critical of the bill, voiced his worries about inflation and increased government spending. (Washington Post)

The Biden Administration has experienced increasing pressure to subdue inflation and remedy supply chains to bring down prices. To which, Biden has responded that his proposed infrastructure plan can help fix this as businesses will be more active as a result of the bill. (CNBC)

The inflation also spurred increasing debates about whether it was temporary or not. 

Economists like Adam Posen, President of the Peterson Institute for International Economics, believe that the increase in prices is not the result of pandemic-related supply shortages, citing that goods not in short supply have also increased in price. (Washington Post)

On the other hand, the White House and Federal officials have claimed that inflation is a temporary facet of the economy. They argue that supply chain backlogs and shortages drive the price increases, and though it might take a while, the supply chains will clear, lowering prices. (Washington Post)

In addition, Michael Klein, an international economics professor at the Fletcher School at Tufts University, cites another plausible reason why inflation will not continue. He believes that inflation requires a continuous price increase. And this doesn’t seem likely to him, especially since businesses are currently scrambling to solve these supply chain issues. (Tufts)

Until supply chain issues can be solved by businesses, it will be up to the Biden administration to remedy the increasing prices. And it appears that Biden knows this, stating that “Inflation hurts Americans pocketbooks, and reversing this trend is a top priority…”(Washington Post)

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