As October 2024 came to a close, it bore witness to a significant inflation rate of 2.6%, a statistic that may seem mundane in its nature. However, it has fueled much unease, sending worry lines across the nation. This surge in inflation helped usurp the Democrats from the presidency, tilting the balance towards Donald Trump. As per an Election Day poll by CBS News, the issue of inflation was deemed a burden by about 75% of voters. A prominent economist from the Cato Institute, a widely recognized libertarian think tank, highlighted inflation as a vital determinant influencing voters during the election.
Despite an apparent easing, the horror of inflation does not seem to be dissipating entirely. Prices, it seems, have inflated approximately 21.4% since February 2020, settling at a permanently higher threshold. The everyday consumer now paying nearly $2 more for a dozen eggs compared to 2020 may not be concerned with the technicalities of inflation. To understand the citizens’ impression of inflation, let’s delve into a few basic facts about the concept, the situation during the pandemic, and the figures who might be held accountable.
At its core, inflation signifies an increase in prices. Drawing out the details from a macroeconomic perspective, inflation calculates how rapidly prices surge over a set time period, typically monthly or yearly. When American consumers find they can afford fewer goods due to rising prices, they’re experiencing the bite of inflation, a phenomenon that’s almost invariably a part of our economic lives. Here is where the distinction between ‘high’ and ‘low’ inflation arises. High inflation is when prices escalate more swiftly than usual, while low inflation marks a slower price hike.
The last couple of decades have witnessed annual inflation rates that remained trapped mostly between 0% and 3%, constituting what’s acknowledged as ‘low’ inflation. However, the period from 2021 to 2023 saw a stark change in this trend, with the inflation rate skyrocketing to 9.1%, a massive 40 year high. This, one can conclude, is what is termed ‘high’ inflation.
What has led to this disruptive inflation spree? Economists attribute the inflation crisis of 2022 to certain critical circumstances. The COVID-19 pandemic played havoc with the world, causing much of the economy to abruptly halt activities in 2020. The consequential reopening witnessed a scarcity in many goods and services, compelling demand to outstrip supply – the textbook precursor to inflation.
The Trump and Biden administrations scrambled to counter the COVID-19 recession with stimulus aids, while the Russo-Ukrainian conflict worsened matters further. The conflict erupted in February 2022, causing significant disruptions in various economic sectors and negative repercussions on consumer prices. The month following the invasion saw inflation rates peaking at 8.5% and gas prices soaring over $4 a gallon.
While inflation was wreaking havoc, the price levels were 2.6% higher in October compared to a year earlier. While this was a relief compared to the high rates seen in 2022 and 2023, it was higher than September’s annual inflation rate of 2.4%. This lingering shadow of inflation signals that the struggle with soaring prices is not yet over with the nation yet to find a stable footing.
So, what role does governmental spending play in stoking the fire of inflation? Economists often agree that lavish government expenses can lead to inflation. A fair share of experts pinned some blame on federal spending for the inflation crisis in 2022. A law had been passed, signing off cheques to millions of American citizens who were hit hard by the pandemic. The stimulus measures accounted for nearly 20% of the nation’s GDP, creating an imbalance in the economy.
Did the administration bear the brunt of the blame for the inflationary chaos? The 2024 elections were, purportedly, heavily influenced by this idea. Voters were irate about the skyrocketing prices, and they pointed fingers towards the Democrats. Was that warranted? Opinions among economists varied. Some argued that policies implemented by the current administration were contributors, but they were low on the precedence order.
The central bank took drastic steps to control the spiraling inflation, hiking the interest rates over 5 full percentage points. While inflation eventually cooled down with the annual rate remaining below 4% since June 2023, the ghosts of high inflation continued to anchor thoughts and opinions. Calculating inflation demands simple arithmetic with the Consumer Price Index (CPI), a metric that tracks changes in prices over time. Here’s how it works: subtract the CPI at the start date from the CPI at the end date, divide the result by the CPI at the start date, multiply the answer by 100, and append a percent sign. This gives you the rate of inflation.
Taking an example; the CPI in 1990 stood at 130.7 and fast forward to 2010, the CPI rested at 218.06. Consequently, this formed an inflation rate of 66.8% between 1990 and 2010. Even as the nation grapples with these economic realities, the government’s role in these fluctuations remains a point of contention. It makes one ponder: will inflation continue to be a central issue in the political sphere, and how will economic policies evolve in the face of unpredictably high prices?