Abigail Tierney
Research expert covering U.S. politics and economics
Inflation in the U.S. - statistics & facts
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Global events following the outbreak of the COVID-19 pandemic in 2020 and the Russian invasion of Ukraine in 2022 have left a lasting impact on economies around the world. Almost every country experienced record levels of inflation, with monthly inflation in the U.S. peaking at more than nine percent in June 2022. Low interest rates, and supply chain constraints fueled by the war in Ukraine and COVID-19 contributed to the initial surge in inflation, but domestic events such as bird flu outbreak, and rental price hikes only worsened the situation. In response, the Federal Reserve monetary policy attempted to curb the impacts of inflation by raising interest rates. Although the extent to which it has helped is debated by economists, the inflation rate has dropped significantly and continues to trend downward into 2024.
Given that goods such as food and energy can be vulnerable to events outside of domestic policy controls, and therefore volatile - consider the high prices of eggs due to avian flu, or the impact of Russian invasion of Ukraine and COVID-19 on the price of crude oil - the measurement of core inflation can be more helpful to economists in predicting long term trends in price levels.
Inflation can be measured at different levels - in individual countries, regions, or globally. These different measures can tell us different information about the state of the world's economies. The inflation rate is usually the percentage change of the general price index - an average of relative price changes. However, prices do not always increase at the same rate and so the consumer price index (CPI) is meant to more accurately reflect the impact of inflation on the day-to-day life of consumers. Deflation is the opposite of inflation and refers to a general decrease in the prices of goods and services over time, which has the negative impact of decreasing consumer spending.
For example, a look at the inflation rate of Venezuela shows that the country experienced an inflation rate of over 65,000 percent. This has had a detrimental effect on the economy, with nearly 4.8 million Venezuelans fleeing the country in 2019 and further exacerbating political and social turmoil that caused hyperinflation in the first place.
Indications and Causes
Generally, high periods of growth are correlated with inflation due to the wage-price spiral. As economies grow, incomes grow. In turn, additional demand causes prices to rise. Workers then demand higher wages to afford the new higher prices. Thus, the spiral continues. We can see that inflation in the United States has historically been reasonably low, as has economic growth when compared to developing economies around the world. This in part explains why projected inflation rates for the United States are lower than projected global inflation rates.
Inflation outpaced wage growth for much of 2022, but as the U.S. economy tightened, the rate of inflation fell below the growth of wages throughout 2023. Despite rising wages on paper, the rapid growth of consumer prices has resulted in a decline in individual purchasing power.
Given that goods such as food and energy can be vulnerable to events outside of domestic policy controls, and therefore volatile - consider the high prices of eggs due to avian flu, or the impact of Russian invasion of Ukraine and COVID-19 on the price of crude oil - the measurement of core inflation can be more helpful to economists in predicting long term trends in price levels.
Economic terms
Inflation is the economic process of a general increase in the prices of goods and services overtime. As prices rise, the amount of goods and services that can be bought with a unit of currency decreases, which may also be referred to as a decrease in a currency's purchasing power. A common measure of the rate of inflation is the rate of change in prices from one period to the next and are usually measured both monthly and annually. Annual inflation rates are those more keenly observed by a wider audience given that fluctuations in price can be temporary. That said, monthly inflation rates are followed closely by those hoping to assess the direction in which the price level is headed.Inflation can be measured at different levels - in individual countries, regions, or globally. These different measures can tell us different information about the state of the world's economies. The inflation rate is usually the percentage change of the general price index - an average of relative price changes. However, prices do not always increase at the same rate and so the consumer price index (CPI) is meant to more accurately reflect the impact of inflation on the day-to-day life of consumers. Deflation is the opposite of inflation and refers to a general decrease in the prices of goods and services over time, which has the negative impact of decreasing consumer spending.
Healthy Inflation
Inflation is not necessarily a negative process; in fact, most economist agree that the negative impacts of a small amount of inflation outweigh the risks of deflation. The necessity of some inflation has been attributed to the driving of consumption, keeping unemployment low, and encouraging investment, all of which play a role in increasing economic growth and GDP. What must be avoided are high levels of inflation or, at the extreme, hyperinflation. Hyperinflation can render private savings utterly useless in a short space of time, creating social problems and uncertainty.For example, a look at the inflation rate of Venezuela shows that the country experienced an inflation rate of over 65,000 percent. This has had a detrimental effect on the economy, with nearly 4.8 million Venezuelans fleeing the country in 2019 and further exacerbating political and social turmoil that caused hyperinflation in the first place.
Inflation outpaced wage growth for much of 2022, but as the U.S. economy tightened, the rate of inflation fell below the growth of wages throughout 2023. Despite rising wages on paper, the rapid growth of consumer prices has resulted in a decline in individual purchasing power.
Abigail Tierney
,
Oct 1, 2024
Abigail Tierney
Research expert covering U.S. politics and economics
