Recently, you may have seen headlines like “A key inflation measure just hit its highest level on record,” “Here’s what 8 financial planners say you should do with your money during inflation,” or “How Inflation Concerns May Affect Price.” Gas prices are rising, wholesale prices are increasing; Christmas trees even have grown in demand and price this year! 

As inflation strikes our national economy, many are wondering what is actually going on. Bishop’s History and Economics Teachers Mr. John Nagler and Mr. Damon Halback broke down what inflation is and what we can do to end it.   

First and foremost, inflation is a very pressing issue in America right now. In just 12 months, wholesale prices in America have increased by 9.6%, according to sources like CNBC.

Mr. Nagler and Mr. Halback agree on the simple definition of inflation. Mr. Halback explained that inflation is “an increase in the price level.” 

How it is caused is a little more complicated. “There’s all sorts of cases based on exactly what you’re measuring and the time frame,” Mr. Nagler explained. Mr. Halback said that inflation is caused most simply by “an increase in the monetary base or an increase in the velocity of money.” Both of these reasons circle around there being a large amount of money in circulation. Mr. Nagler explained that right now, the main cause of inflation is COVID-19. “You’ve had pent-up demand from COVID, along with money being saved [by] and given from the government,” he explained. This means that when vaccines became available and everything opened up, everyone went back to buying. 

“You also have major supply shortages,” Mr. Nagler continued. Furthermore, soaring demand and tanking supply are not an equation for economic prosperity. “That is what most people would say is causing inflation right now,” Mr. Nagler explained. 

There are a number of interesting things to note about our current inflation circumstance. Mr. Halback reiterated Mr. Nagler’s point about the supply and demand reasoning in our current situation. The pandemic truly makes our situation different. Mr. Halback explained that “the pandemic caused pent-up demand” and when everything reopened “spending rushed into the market simultaneously which increased monetary velocity.”

Mr. Nagler also explained that our current example is fascinating because of the midterm elections. He explained, “Republicans are going to blame President Joe Biden personally for inflation by oversimplifying [it].” This means inflation could have a large effect on which way many vote, mainly because unless inflation recesses, “Democrats are going to have a hard time defending against the Republicans’ claims.”

There are dangers to inflation, as Mr. Halback explained. “Inflation erodes the purchasing power of fixed income earners, pensioners, and wage earners whose raises do not keep up with inflation.” Mr. Nagler said that inflation impacts the general public because price increases affect citizens’ spending. This is possibly dangerous to some who can’t pay rent or afford food.  

Mr. Halback also explained that when we work, the money we make will become worthless as the economy inflates. He said that “for every hour worked where inflation lessens value, that part of your life was taken.” Inflation can force people to work longer to keep up with the expensive economic growth. This endangers work-life balance. 

So, how does inflation get solved? Mr. Halback explained that the best way the government can solve inflation is by “spending money on infrastructure to modernize economic and education programs.” He also said slowly increasing interest rates will help combat the historical low rates. Mr. Nagler agreed with this point, saying that “the best tool is to raise interest rates.”

Our economy has a complicated landscape, evident by our gas prices. In this year alone, the price of gas has inflated by 58% according to the U.S. Inflation Calculator. As Mr. Nagler and Mr. Halback’s informative facts rest in your mind, hopefully you can better understand the high prices next time you drive by The Extra Mile.