Inflation surge
The world’s economy has not experienced this much inflation in four decades. It’s no wonder that the public is frustrated to find their paychecks don’t stretch as far. But how exactly did we get here? Inflation has many causes, and it happens in different ways. Some prices change daily, while others — like wages set by contract — take longer to adjust. In general, rising prices reduce the purchasing power of consumers and hurt those who save, but they also benefit investors because higher interest rates mean that investments earn more in real terms.
Some experts believe that the 2021-2022 surge in inflation was caused by a rapid change in world circumstances. The COVID-19 pandemic triggered widespread lockdowns that restricted travel and work, leading to shortages of many staple consumer goods. This led to a rise in producer price inflation (PPI) and Consumer Price Index (CPI) prices. This was especially true for those goods that are in short supply, such as energy and food.
These production-based price increases triggered cost-push inflation, which occurs when companies pass higher input costs to consumers. This is typically the case for those whose business models rely on profit-maximizing pricing decisions. In addition, the high demand for these goods during the pandemic pushed producers to increase output. This increased production drove up labor costs, which is reflected in CPI prices. Many forecasters expected these higher costs to primarily show up in the labor market, where wage pressures would push workers’ demands for higher pay.