Inflation: An attack on Consumers

By Michael D'Ambrosio | October 21, 2021

Inflation is a hot-button issue for today's consumers. Broadly speaking, inflation is defined as the general rise of prices in an economy over a period of time and is evaluated on a monthly basis. It hurts the pockets of consumers, as they’re paying more for something than they would in the past. More alarmingly, it’s at its highest point in over a decade. Since March of 2020, or the start of the pandemic, inflation has been a widespread issue to the American consumer. It started with simple household items spiking to unheard of prices to essential commodities. This inflation has worsened over time and reached a record 13 year high of 5.4% in June. In simpler terms, if inflation is at 5%. $100 of shopping today would have cost you only about $95 the year prior.

Gas, energy, and wages were hit hardest by inflation. They’re the core and rock of our society and are critical to the well-being of consumers. Gasoline prices surged by a large margin over the past year and currently sit at around 43%! This is truly a staggering number in comparison to last year’s -15%. This hurts the pockets of consumers, especially those with a lower income. Spending $10-$15 extra dollars at the pump over time can seriously hurt someone on a budget. There are a few reasons for this sudden surge in prices: one is demand. There was little need for gas during the pandemic; thus, production was cut drastically. In the later months of the pandemic, the demand rapidly increased with not enough supply. Adding in the poor policy-making by our leaders and not fighting the surge in price. This creates inflation that is tough to fight.

Furthermore, the energy section has been hit hard as well. Energy is broader and encompasses several sectors, including gasoline, crude oil, heating oil, and natural gas. They’re highly valued energy sources that have impactful market implications. In terms of numbers, energy inflation is up to 15% in 2021, compared to 2020s -8.3%. This is again a massive increase. This is largely due to an oil shortage. Basic supply and demand principles indicate that a supply shortage should drive up the demand and, subsequently, the price. This shortage is still ongoing as a barrel of oil has risen to above $80 compared to around $60 pre-pandemic. This has caused some frenzy in our markets as oil is used daily by all. It’s used in homes, buildings, and almost every machine that functions. When these prices rise, we all suffer. Experts predict energy inflation to cool eventually. However, they’re unfortunately expecting a tough time to come in the winter months when the heat goes on, and oil demand increases even more.

Another contributor to this issue is our society’s push to become more environmentally friendly. The Biden administration has been implementing policies to slow down fossil fuel production to combat growing climate change. Biden sent a powerful message to the oil and gas industry by canceling the Keystone pipeline project. It would’ve brought 830,000 barrels of oil per day from Alberta to our massive oil refineries in the Dakotas and Nebraska. Moreover, the Democrats proposed a 3.5 Billion dollar budget reconciliation which is twice the budget of all 50 states combined. This would only increase the inflation that’s affecting so many US families. Their climate initiative has played a large part in our economy’s overall inflation, especially pertaining to energy. The current energy inflation negatively affects the lives of so many people, and not much is being done about it.

Inflation has also impacted wages in our society. Employees’ pay has drastically increased due to the high demand for labor. There is a massive shortage of labor across the country. There are over 10.2 million open jobs in the US. Similar to previous issues discussed, the pandemic has done horrible things; in this case, the labor market has taken a massive hit. There were large amounts of layoffs at the start of the pandemic, and even though the economy is slowly getting back to normal many of these jobs have still yet to be filled. The demand for labor is high, and average pay has seen an increase because of this. Average hourly earnings rose 3.6% in the past year, the biggest spike in over ten years. There is also less motivation to work in lower-level positions due to monthly stimulus checks bringing in similar income. Thus, creating less of an incentive to go out and work or find a job. The rise of wages benefits people for obvious reasons; however, employers can suffer greatly. Businesses from large to small are now required to pay employees more to attract them. The current inflation in our society has affected consumers and businesses greatly.

Looking at the future, the Fed, or the Federal Reserve, which is the central bank in the United States, has been saying inflation is largely transitory but predicts it to continue into next year. Chairman Jerome Powell expressed his frustration at the recent Fed conference. He feels that the most important thing to calm down inflation is to contain covid in our society as it has created immense hysteria and fluctuations in our economy. Inflation is a huge issue in our society, and there doesn’t seem to be an end in sight. We will likely see the Fed take proactive steps and become more involved to slow down inflation in the coming months.

Edited by Michael Muroff and Joseph Barbieri