Can someone explain to me why we have such high inflation now?

[Anonymous]

I don’t understand why now that we aren’t paying for the pandemic and for the war in Afghanistan that our government spending isn’t more under control and our country making more than during the pandemic. Why is inflation so bad right now?

[Anonymous]

“ Understanding the CARES Act
At $2.2 trillion, the CARES Act stands as the largest financial rescue package in U.S. history. The 2009 Recovery Act was $831 billion, the Consolidated Appropriations Act (CAA) was $910 billion, and the American Rescue Plan Act (ARPA) comes closest at $1.9 trillion.”

[Anonymous]

Anonymous wrote:“ Understanding the CARES Act
At $2.2 trillion, the CARES Act stands as the largest financial rescue package in U.S. history. The 2009 Recovery Act was $831 billion, the Consolidated Appropriations Act (CAA) was $910 billion, and the American Rescue Plan Act (ARPA) comes closest at $1.9 trillion.”

+1 add onto that all the money that some people actually saved during the shutdown. For many, like me, had no commuting/office costs, childcare costs, gas, kids activities, etc. I didn’t qualify for any cares act cash, but I saved hundreds a month by everything shutting down. Once everything opened, we entered the world with a lot of disposable savings looking to buy vacations and things we’ve put off, which for me is furniture and a new car

[Anonymous]

Anonymous wrote:“ Understanding the CARES Act
At $2.2 trillion, the CARES Act stands as the largest financial rescue package in U.S. history. The 2009 Recovery Act was $831 billion, the Consolidated Appropriations Act (CAA) was $910 billion, and the American Rescue Plan Act (ARPA) comes closest at $1.9 trillion.”

Thank you, President Trump!

[Anonymous]

Demand side:
CARES Act, American Rescue Plan, and zero interest rates means that a LOT of money was pumped into the financial system. It takes years for these funds to work their way through the economy and taper off. Look at my family alone: we refinanced from 3.75% mortgage to 2.75% mortgage. This put an extra $500/month in my family's pocket....forever. While we used this bonus to pay down principal faster, lots of people did not. Now add in PPP monies, money to state governments, money to families and working poor...that's a lot of dollars chasing the same (or less!) amount of goods.

Supply side:
Supply chains still are not fully back to normal. High energy costs from disinvestment and the Russian war are pumping up inflation. We also have a demographic labor issue - retirement of Boomers, closed border for two years, lack of professional training for young people, substance abuse - that is leading to a labor shortage. This is leading to a wage-price spiral.

[Anonymous]

More money in the economy chasing fewer goods (supply issues) = inflation.

[Anonymous]

Amazing how Americans don't understand basic econ. You thought all those stimmi checks, PPP loans, and other free give aways had no consequences? The US gov have away multiple trillion dollar+ stimuli. The Fed juiced the economy with zero percent interest rates, doubled the supply of money in only 2 years, and expanded the balance sheet to $9 trillion dollars (it was only $800B around 2008). When you have that much cash and credit liquidity in the system you get persistent inflation. How in the hell do American consumers STILL have a voracious appetite for vacations, cars, electronics, dining out, etc. even though prices are skyrocketing? It's because people have too much money. The stamina for price hikes that Americans have is absurd. It means inflation is sticky and very difficult to dislodge.


The latest CPI report tanked the markets. It was very bad. It clearly shows inflation is being driven by excessive demand as well as an overly tight labor market and not so much due to supply constraints. Yes, the labor market is too hot. Unemployment also needs to go back up to reduce the strangle the labor market has on inflation.

The fed is now raising interest rates and quantitative tightening to remove money and liquidity from the economy. Costs to borrow are skyrocketing. It will bring down asset values, remove.miney from the system, and hopefully cause unemployment to go up. The net result will hopefully be taming of this terrible inflation.

[Anonymous]

I believe it's supply chain. Fewer goods, everyone is still competing for them.

[Anonymous]

A lot of these answers aren't contextualizing it in the fact that there is high global inflation. The US is in line with what everyone is experiencing so tying it just to US policies doesn't make sense.

[Anonymous]

Anonymous wrote:A lot of these answers aren't contextualizing it in the fact that there is high global inflation. The US is in line with what everyone is experiencing so tying it just to US policies doesn't make sense.

Right. The U.S. spent more on stimulus during the pandemic but has lower inflation than most of Europe. We're seeing less of an effect from energy prices here than Europe is, but broader supply issues are worldwide. It's not as if not doing the spending during the bleakest days of the pandemic would have meant we had no inflation, and that would have come with significant economic effects, too.

[Anonymous]

Low interest rates for too long and RUSSIA

[Anonymous]

Anonymous wrote:

Anonymous wrote:“ Understanding the CARES Act
At $2.2 trillion, the CARES Act stands as the largest financial rescue package in U.S. history. The 2009 Recovery Act was $831 billion, the Consolidated Appropriations Act (CAA) was $910 billion, and the American Rescue Plan Act (ARPA) comes closest at $1.9 trillion.”

+1 add onto that all the money that some people actually saved during the shutdown. For many, like me, had no commuting/office costs, childcare costs, gas, kids activities, etc. I didn’t qualify for any cares act cash, but I saved hundreds a month by everything shutting down. Once everything opened, we entered the world with a lot of disposable savings looking to buy vacations and things we’ve put off, which for me is furniture and a new car

This. We didn't get any money from the CARES Act, but we saved a lot during the pandemic AND we deferred a lot of purchases. A lot of people did that, so there's multiple years' worth of demand for goods and services.

Add to that manufacturing and supply chain issues that constrained the supply side, and you've got too much money chasing too few goods and services = inflation.

[Anonymous]

Anonymous wrote:A lot of these answers aren't contextualizing it in the fact that there is high global inflation. The US is in line with what everyone is experiencing so tying it just to US policies doesn't make sense.

+100

Anybody who cites CAA, CARES Act, PPP loans, etc, as a reason for inflation in the United States is a partisan hack, woefully underinformed, or both. CAA, CARES, PPP et al are making inflation in the United States run marginally hotter, but they're not the proximate cause. Countries that were stingier with fiscal and monetary stimulus are still experiencing decades-high inflation rates; the UK, for instance, spent about half as much on fiscal stimulus relative to GDP as we did, and yet their inflation rate is higher than ours.

The current state of global inflation is disproportionately caused by supply-side issues; the well-publicized supply chain woes, disruptions in the energy market, etc.

[Anonymous]

Anonymous wrote:Amazing how Americans don't understand basic econ. You thought all those stimmi checks, PPP loans, and other free give aways had no consequences? The US gov have away multiple trillion dollar+ stimuli. The Fed juiced the economy with zero percent interest rates, doubled the supply of money in only 2 years, and expanded the balance sheet to $9 trillion dollars (it was only $800B around 2008). When you have that much cash and credit liquidity in the system you get persistent inflation. How in the hell do American consumers STILL have a voracious appetite for vacations, cars, electronics, dining out, etc. even though prices are skyrocketing? It's because people have too much money. The stamina for price hikes that Americans have is absurd. It means inflation is sticky and very difficult to dislodge.

The latest CPI report tanked the markets. It was very bad. It clearly shows inflation is being driven by excessive demand as well as an overly tight labor market and not so much due to supply constraints. Yes, the labor market is too hot. Unemployment also needs to go back up to reduce the strangle the labor market has on inflation.

The fed is now raising interest rates and quantitative tightening to remove money and liquidity from the economy. Costs to borrow are skyrocketing. It will bring down asset values, remove.miney from the system, and hopefully cause unemployment to go up. The net result will hopefully be taming of this terrible inflation.

Amazing how you don't understand this is a global phenomenon. It's not just the United States.

Also, FU with your "people need to suffer unemployment to solve the problem." I bet you're not volunteering to quit your job. We have a garbage social safety net in this country. I, for one, am willing to pay more for things if it means that more people have jobs.

[Anonymous]

Anonymous wrote:

Anonymous wrote:A lot of these answers aren't contextualizing it in the fact that there is high global inflation. The US is in line with what everyone is experiencing so tying it just to US policies doesn't make sense.

+100

Anybody who cites CAA, CARES Act, PPP loans, etc, as a reason for inflation in the United States is a partisan hack, woefully underinformed, or both. CAA, CARES, PPP et al are making inflation in the United States run marginally hotter, but they're not the proximate cause. Countries that were stingier with fiscal and monetary stimulus are still experiencing decades-high inflation rates; the UK, for instance, spent about half as much on fiscal stimulus relative to GDP as we did, and yet their inflation rate is higher than ours.

The current state of global inflation is disproportionately caused by supply-side issues; the well-publicized supply chain woes, disruptions in the energy market, etc.

+1

https://www.forbes.com/advisor/personal-finance/inflation-by-country/

Kristina Hooper, chief global market strategist at Invesco, references two textbook examples why inflation is currently high: demand-pull inflation and cost-push inflation.

Demand-pull inflation occurs when prices increase due to increased demand, she explains. Demand-pull inflation can be driven by increased government spending (for instance, providing stimulus checks).

If consumers expect higher prices in the future, they’re more likely to buy today—and that becomes a self-fulfilling prophecy when it comes to inflation expectation, according to Hooper.

The other type of inflation we’re seeing, cost-push inflation, leads to price increases when the supply of goods and services is disrupted. High prices for oil and natural gas are good examples here.

The global pandemic had a great deal to do with rising inflation, Hooper explains. “We turned off [the] economy, and then we turned it back on,” she says.

When the economy started growing again, many countries faced similar challenges with labor sourcing and supply chain disruptions. “That contributed to scarcity of supply just as demand increased,” Hooper notes.