Defined: Inflation

What is it? Why you should care? What is being done about it?

Jared Garrison, Contributing Writer

In economics there are traditionally two forces that drive the markets that we all use, supply and demand. In times where demand surpasses supply, the price of goods which are under demand goes up. Inflation happens when demand surpasses supply across an economy and the price of goods becomes so high that the money used for those goods becomes worthless. The government can limit this by restricting the amount of money it issues, but if it does this too much, then the economy won’t be able to grow.

Inflation in small amounts can be good as it shows an expanding economy. The Federal Reserve, which is essentially the bank that regulates banks, tries to keep inflation at less than 2% every year. But recently the U.S. has undergone a heightened rate of inflation, increasing consumer prices by 9.1% according to the Bureau of Labor Statistics.

Inflation affects all parts of daily life. Think about how many things you buy in any given day or week. A cup of coffee at Starbucks, a new notebook from the University Store, a new shirt from Amazon. Now imagine if all these things that you would commonly buy cost a little more than they usually do, these minor price increases add up, making your budget just a little tighter every week, making life more stressful in the long run. Then consider that companies which buy things from other companies, such as Aramark buying the food for Scranton Commons, must pay more for their goods. You can then easily see how this effect of inflation can snowball into something troubling.

In the past several countries have failed to control inflation, leading to radical changes. A great example is the Weimar Republic of Germany, which had inflation issues in the 1920s which opened the door for Nazism to take hold. In more contemporary times, one can look to Venezuela to see how a modern economy is crippled by inflation run rampant.

When COVID-19 hit, people spent a lot of money on things like home improvements, appliances, and electronics to keep themselves entertained while in lockdown. This was helped along and promoted by government stimulus. In the short term, this stimulus kept the American economy from collapsing amid a global crisis, but the long-term result was inflation. As the demand for everything is much higher companies are still clawing their way back from pandemic-era production rates. This is compounded by a shortage of labor for these producers which makes it not only harder to make more goods, but more expensive as workers are demanding higher wages and benefits.

This isn’t a condemnation of worker’s rights, however. Similar pushes for workers rights have happened around times of great crisis. Such as during WW2 when more women joined the workforce as men went off to fight, or how in medieval times when nobility allowed for more freedoms when the Black Plague wiped out significant numbers of the peasant population.

This crisis of inflation, which is the result of events which we all know too well, is ultimately something which we as individuals can’t do much about. And the government’s ability to reduce inflation is limited to how much legislators are willing to cooperate on laws such as the Inflation Reduction Act, the CHIPS and Science Act, and their continued support of the Federal Reserve.