A Look at Inflation

Since the Covid-19 pandemic began, how has our economy changed?

First and foremost, tens of thousands of employees have stopped working creating a widespread labor shortage. Second, relief packages are getting pumped into the economy causing demand to go up tremendously. And lastly, business owners are having to decide whether or not to ride the wave of increasing prices, and it’s safe to say most are following suit. As a result, we’re facing a rapid rise in inflation. To put things into perspective, the average rate of inflation in the United States is 3% – in today’s market, we’re seeing 6-10%.

There’s no question the actual value of the dollar has eroded in our country. With an excessive amount of currency sloshing around, prices are skyrocketing. We’ve listed three major contributing factors to the inflation we’re seeing today – let’s dive in a bit more.

1. Labor Shortage

The shortage of supply in nearly every industry is causing a massive increase in demand. What’s interesting about the current shortage of supply is that it’s not from a lack of raw materials, but rather a shortage of people needed to transform the raw materials and get them to the consumer. As demand continues to rise for what little is available, naturally prices will go up too. There are several reasons for the nation’s current worker shortage, including health concerns, child care, and government unemployment benefits. Without a doubt, the current labor shortage is playing a key role in the inflation we’re seeing today.

2. Relief Packages

With supply at an all-time low, all that was needed to ensure hyperinflation was for demand to be at an all-time high. This strong imbalance was achieved with the help of covid-related relief packages. These relief packages were designed to help an economy that was burdened with efforts to handle Covid-19. Many families have received aid from the government in the last year and half. And with more money in the hands of consumers across the nation, demand has increased exponentially. Still, this hasn’t changed the current supply situation, which has led many businesses to increase the prices of what little they’re able to bring to the market.

Another noteworthy cause for the increase in demand is the current interest rates, which are also at all-time lows. Most people in today’s market buy on credit, and the low cost to borrow money has enticed many consumers to swipe the card, take out a mortgage, or finance a shiny new truck.

3. Price Increases

While the lack of supply and abundance of demand is leading to justifiable price increases for many industries, others are simply riding the wave of hyperinflation. Supply might not be an issue for some, but there’s an increase in demand nonetheless. What better time to charge more for a product or service then when everyone else is. Again, most businesses have increased their prices due to factors such as labor and material shortages.

Limited supply and maximum demand combined with money getting pumped into the economy is leading to the shortages we’re seeing today – it’s the ultimate trifecta. It’ll be interesting to see how the economy changes over the next few years, especially with Covid-19 now almost in our rear-view. We’re curious to hear your thoughts on the topic – be sure to leave a comment on one of our Facebook posts!

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