Stubborn inflation driving up the cost of living is supported by data.
Prices, as measured by the seasonally adjusted Consumer Price Index, are now up over 20.9 percent since February 2020, according to a Bankrate analysis of the August 2024 data, from the U.S. Bureau of Labor Statistics. This exemplifies the recalcitrant nature of inflation, and the lack of effective policy, to deal with it. Indeed, Globaldata stated two years prior, in 2022, that the U.S. was experiencing a 40-year inflationary high.
The Federal Reserve Bank of Cleveland, in attempting to define inflation, notes what is not included in inflation. If there is a price increase of various goods – for example, the price of fruit goes up due to a weather freeze – that is not inflation. Rather, inflation is a price increase of selected goods and services across the economy – for an extended period of time. Here, the selected set of goods and services, for the U.S. are: housing, food, transportation, and entertainment. February 2020 to the present is the time frame involved.
“By far, the most expensive increase has been in housing,” said Matt Snyder, 31, who is focusing his time on meeting prerequisites for nursing school. “In 2020, I shared a house, and my cost was $900 per month, but now my share for a roommate situation is $1,300, a $400 increase. That means, over a 12-month lease, I am paying $4,800 more than four years ago for a place to live. Also, fast food, which used to be the cheap food, is now just as expensive as dining out. Clubs used to cost about $5 – $10 and now going to a club costs about $30. I recently paid $11 in a club for a bottle of water.”
The reasons for the onset of inflation are manifold. Sarah Foster, writer for Bankrate.com, an independent publisher and comparison service, identifies various causes of inflation. “Inflation can result from increased consumer or government spending, especially where that involves taking on debt. Inflation can also happen because of deficit-spending – that is lower taxes without corresponding cuts in government spending”, she writes.
Foster also includes inflation being caused when the government increases the money supply. According to the International Money Fund, “long-lasting episodes of high inflation are often the result of lax monetary policy.” In essence, if the money supply grows too big relative to the size of an economy, the unit value of the currency diminishes. In this way, money can lose its purchasing power simply because the government printed too much of it.
Renay Reid, 30, a business administration major says “The rising costs for food and groceries – even at the cheap stores like Food For Less – has been dramatic. The daily deals you get at the stores do not really matter, because everything is already so high. If you try to shop elsewhere, the prices are just as high. Self care items like body wash and beauty have become especially expensive.”
Two things that have helped Reid, “Coupons definitely make a difference and a store called Grocery Outlet, Bargain Market. You can get good prices there because they sell things they bought at a discount, so you get the discount too. But those goods change all the time, so you find the good deals they have, until they run out. It is not a place where you get the same things week after week” she says.
The dual purpose of the Federal Reserve is to maximize employment and stabilize prices under the Federal Reserve Act of 1913. One of the chief tools it uses to stabilize prices is through interest rates. On its official website, the Federal Reserve Bank of Cleveland says that it raises the interest rates when inflation becomes too high. Raising the interest rates causes borrowing to slow down, by making it more expensive. This discourages consumer spending, and less spending causes the prices to stop rising so fast, for lack of demand.
In an effort to tame inflation, beginning March 2022, the Federal Reserve raised the federal funds interest rate 11 times; from .025 percent on March 17, 2022 to 5.25 – 5.50 percent on July 27, 2023.
At the most recent Federal Open Market Committee meeting on September 18, 2024, the Federal Reserve announced a drop in interest rates by .50 basis points. The rate range now stands at 4.75 – 5.00 percent. It remains to be seen how soon this interest rate drop will affect the economy. Real estate loans will be immediately affected but this rate drop is unlikely to bring down the price of consumer staples any time soon. At most, prices will inflate at a slower rate.
