Introduction:

In recent years, inflation has risen significantly, impacting economies worldwide and affecting the cost of living for millions. Inflation is the rate at which the general price level of goods and services increases over time, and can be influenced by multiple interconnected factors.

Reasons Why Inflation Increased:

1. Low unemployment rate

When unemployment is low, there are more jobs than people looking for work. This means that employers need to pay higher wages to attract employees, which can lead to rising wage inflation. With more money to spend, consumers drive economic growth and demand for goods and services, which can lead to higher prices. Unemployment is currently lower than it was before, causing high inflation.

2. Direct price increase

A direct price increase is usually caused by raw materials being more expensive to buy. From 2020-2024, the unemployment rate was high meaning there were not many people producing goods. This also means companies had to give better wages to employees. In order to make a profit and pay their employees, they raised the price of the items.

3. Volatility of energy prices

Volatility of energy refers to energy sources like electricity, natural gas, and oil. A major part of the volatility of energy price increases was the war in Ukraine because the United States has been sending sources of energy to help Ukraine in the war. This led to energy sources being harder to get, making producers increase the price to get the energy.

4. Shelter, transportation services, and motor vehicle insurance

When the price of these change, it directly impacts the Consumer Price Index, leading to a higher inflation rate. Many businessmen will increase the price over time, forcing the consumer to pay more because the consumer relies on the service.

5. Government spending

Government spending can cause higher inflation because it can increase demand for goods and services. Three main ways government spending is financed is by tax collection, government borrowing, and fees. When demand increases for the goods and services, the price is going to increase, so the company can make use of the profit for their own benefits.

Conclusion:

These factors collectively pushed inflation higher by increasing the cost of goods and services across the board. The interconnection between energy prices, transportation, and production costs compounded the effects, while government spending added further inflationary pressure by stimulating demand in an already constrained supply environment.

Works Cited:

• U.S. Bureau of Labor Statistics. (n.d.). What caused inflation to Spike after 2020?. U.S. Bureau of Labor Statistics. https://www.bls.gov/opub/mlr/2023/beyond-bls/what-caused-inflation-to-spike-after-2020.htm#:~:text=As%20the%20labor%20market%20tightened,firms%20begin%20to%20increase%20prices
• Laurence Ball, D. L., Gauti B. Eggertsson, D. K., Sarah A. Binder, N. M., Pascal Michaillat, E. S., & William B. English, B. S. (2023, July 25). What caused the U.S. pandemic-era inflation?. Brookings. https://www.brookings.edu/articles/what-caused-the-u-s-pandemic-era-inflation/
• Foster, S. (2024, October 10). What is inflation? Here’s how rising prices can erode your purchasing power. Bankrate. https://www.bankrate.com/banking/federal-reserve/what-is-inflation/#:~:text=Cost%2Dpush%20inflation%20occurs%20when,into%20the%20cost%20of%20living