So everyone is talking about this year’s US inflation, can anyone explain why it’s so important?



So everyone is talking about this year’s US inflation, can anyone explain why it’s so important?

In: Economics

Inflation, broadly, is what happens when money becomes less valuable as a result of more money being injected into a given economic system. In this case, spending went down during the pandemic, and a lot of stimulus money wasn’t actually used. Now that the country is reopening, a lot of people are starting to spend that saved-up cash.

The current inflation is both a good and a bad sign; it’s bad because it obviously means prices will go up on essentially everything, but it’s a good sign because it indicates that a lot of people are starting to spend money again at pre-pandemic rates, indicating that the US is returning to economic normality. At the same time (on a personal level); inflation is actually a *good* thing for debtors, as debts don’t inflate with the currency, thus the functional value of the money you owe goes down with inflation.

In the US wages have remained stagnant since 2009, the value of money going down paired with the rising cost of living hits a majority of americans especially hard. When the average citizen suffers they–the engine of industry suffers and the economy as a whole goes down as a reflection of this.

Similar impacts can be felt in other countries but i dont have those numbers.

We’ve escaped inflation in the past by increasing production faster than the money supply.

During covid the opposite happened.

Production slowed when people were kept home from work, while the government injected massive money (covid relief) into the economy.

The government replaced the lost wages, but not the trillions in goods, and services that would have been produced.

Supply vs demand is what drives prices up.

Inflation of 5% in May means that ~~everything was 5% more expensive at the end of May as it was at the start of May.~~ the average price of things overall rose by a rate in May that would come to 5% per year.

Considering that average wages haven’t gone up 5% in *years*, this is important.

(like others have said, this is a good sign in that it means people are spending more again, and good for people that have more debt than savings, but still kind of alarming over all)

Inflation is the general rise in price of an economy over time. Generally speaking the purchasing power of the average consumer goes down. Example, when I was a kid a 20 oz bottle of Soda was $.75 cents now it is $1.50. Inflation usually naturally occurs and if kept at a moderate level it is okay.

The difference we are seeing now is a post pandemic inflation rate. This has a myriad of reasons, some of it being the government giving blanket paychecks to people thus increasing the money supply while the economy wasn’t producing as much so we see a rise in prices. I am not saying that the bailouts were good or bad but the money supply increased while production decreased, so you are seeing inflation at a significantly higher rate than we did in the past.