An image of a pair of shoes and an image of person holding a gas pump, both have facts associated

Mark Brown/Getty Images (feet); iStockPhoto/Getty Images (pump); Liu Guanguan/China News Service via Getty Images (prices); Shutterstock.com (all other images)

FOOTWEAR UP 5.8% | GASOLINE UP 59.9% (Source: U.S. Bureau of Labor Statistics. Data is for june 2021-June 2022.)

FOOTWEAR UP 5.8% | GASOLINE UP 59.9% (Source: U.S. Bureau of Labor Statistics. Data is for june 2021-June 2022.)

What’s Up With Inflation? 

The cost of almost everything we buy is rising. Here’s why.

During your back-to-school shopping, you might have noticed that everything from jeans to notebooks was more expensive. So are groceries, gas, housing, and even haircuts.

Over the past year, the cost of goods and services in the United States has soared. Taylor Farrell, 18, of Chelsea, Vermont, has felt the effects firsthand. She drives a large pickup truck and an SUV—both of which aren’t very fuel efficient—and her job, friends, and high school are all at least a 30-minute drive from her house. It used to cost her about $50-$60 to fill up her tank, but this summer, gas prices surged—causing her to cut back on visiting friends to save money.

“I put off filling the tank up for quite a while,” Farrell says. “And I was at probably an eighth of a tank and I put $100 in it, and it didn’t fill it. I was just like, ‘Oh my goodness.’ ”

When the price of nearly everything we buy rises, it’s called inflation. A 2 percent inflation rate is considered normal in the U.S. (At that rate, a $10 T-shirt increases in cost by about 20 cents a year.)

But prices have been climbing much faster than usual. This spring, inflation in the U.S. reached a 40-year high. From June 2021 to June 2022, prices at stores leaped by 9.1 percent. Read on to find out why this is happening and when costs are expected to return to normal.

Pain at the Pump

Average price in the U.S. for a gallon of gas

Line graph showing the average price in the U.S. for a gallon of gas from 1995-June 2022

Source: U.S. Bureau of Labor Statistics. Data is for june 2021-June 2022.

Fill ‘Er Half Up: Americans are paying record prices for gas.

1. Why have prices gone up?

The problem began with the Covid-19 pandemic, which started taking a toll on the U.S. in early 2020. Remember having to wait months to get a new bike or video game? That happened because the pandemic disrupted the global supply chain. Factories slowed or stopped production because workers got sick. Companies had trouble making and delivering products as a result.

At the same time, Americans who were staying home as infection rates rose began buying more. When goods or services are in high demand but in short supply, companies often raise prices, a principle known as “supply and demand.” Despite costs going up, many people didn’t start slowing their spending until this summer.

Lastly, the rising price of oil has added to the problem. Oil is used to make, transport, and power many products—so when it gets more expensive, those goods do too.

Oil prices have increased because demand is high and supply is low. (Oil companies began producing less during the pandemic, when people cut back on driving and flying.) In addition, Russia’s invasion of Ukraine in February disrupted the global oil market. To punish Russia, a major oil producer, the U.S. and the European Union banned most Russian oil. That reduced oil availability even more.

Illustration of a multiple choice question with answers of Maui, Europe, and the grocery store

Dave Whamond/PoliticalCartoons.com

2. Which prices are rising most?

Gasoline, which is made from oil, has seen the biggest increase. Between April 2020 and April 2022, a gallon of gas more than doubled in price, and prices continued to soar during the early summer, with the national average price per gallon reaching more than $5 in June.

That spike hit Americans in two ways: They had to pay more to gas up their cars, and many businesses raised their prices to cover their own increased transportation costs.

Grocery prices have also seen big jumps.

“Large amounts of oil and natural gas go into fertilizers and pesticides that are used to produce and protect grains, vegetables, and fruits,” explains Veronika Dolar, an economics professor at the State University of New York at Old Westbury.

And since grain is needed to feed cattle and other farm animals, the price of meat has increased too. If your school cafeteria has cut back on burgers, it may be because, as of June, the price of ground beef was up nearly 10 percent since last year.

Paychecks aren’t rising as fast as prices, so Americans are having to stretch their dollars further.

Fact about clothing and a person in between clothes on a rack

iStockPhoto/Getty Images (clothing); Shutterstock.com (burst)

CLOTHING: Men’s: UP 8.7% | Women’s: UP 3.5%

Source: U.S. Bureau of Labor Statistics. Data is for apparel, which includes accessories, outerwear, and more, June 2021-June 2022. 

3. How do these increases affect people?

Essentially, our money doesn’t go as far as it once did. In June, the average U.S. household needed to spend nearly $500 a month more than it did last year to pay for the same goods and services, according to a report by Moody’s Analytics.

People’s paychecks aren’t rising as fast as prices. That means Americans need to stretch their dollars further to cover weekly expenses. Walmart, the nation’s largest food retailer, reports that its shoppers are buying cheaper store-brand items rather than pricier alternatives. They’re also reaching for half gallons of milk rather than full gallons.

Low-income households have been especially hard hit because they were already spending most of their money on food and other necessities before prices went up. Increasing rents have added to the crunch.

People “are having to decide between buying food for their children . . . or paying rent,” Dana Karni of Lone Star Legal Aid in Houston, Texas, told reporters. “And that’s a real tight squeeze.”

Fact about ground beef and a photo of a person with a cheeseburger

iStockPhoto/Getty Images (burger); Shutterstock.com (burst)

GROUND BEEF: up 9.7% | Other stuff that goes on your burger: BREAD: up 10.8%; LETTUCE: up 11.4%; CONDIMENTS: up 12.2%; BACON: up 11.9%

Source: U.S. Bureau of Labor Statistics. Data is for June 2021-June 2022.

4. What’s being done to help?

When there’s a lot of inflation, you want to cool the economy down,” says Dolar. “You want to cut down the demand.”

One way to decrease demand is to make borrowing money more expensive. To do that, the government can raise interest rates, which determine how much you’ll have to pay back a lender, such as a bank, when you borrow money. These rates are largely determined by a government agency called the Federal Reserve.

In June and July, the Fed—as it’s often called—made the two largest increases to interest rates in nearly three decades. U.S. officials hope the increases, which also affect credit card rates, will encourage some people to hold off on making big purchases. If there’s less demand for goods and services, companies will be more likely to cut their prices to entice customers.

What Is Inflation?
How it affects economic perceptions and spending habits

5. Will costs keep going up?

Financial experts hope not. The Federal Reserve will likely continue to slowly raise interest rates as needed until demand for goods and services cools. Once that happens, supply will increase and prices should level off.

As of early June, some experts were predicting that inflation in the U.S. could drop to about 3 percent next year as supply chains get back to normal. That much of a rate drop would help prices come back down too, they explain. At the same time, Dolar says, people’s paychecks may rise.

“Typically, what happens is that prices go up and eventually wages or salaries come up as well,” says Dolar. “Then we’re able to buy the same amount of stuff as before.”

With additional reporting by Chrisanne Grisé.

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