Recently, the inflation rate has been making headlines. With a current rate of 7%, the worst yearly change since 1982. According to the US Department of Labor data, energy costs rose 35% over the last year. Leading to a chain reaction across the board. It is now costing much more to fill a tank of gas. To be precise, it climbed 58% from around $2 a gallon across the US to more than $3.3 a gallon on average. Electricity prices went up 6%. Food prices have climbed drastically as well: groceries 6.5%, beef and veal 20.9%, and pork 16.8%. Used auto prices soared 37.3%, and new vehicles are up 11.8%. Furniture prices aren’t immune as well with a 15% increase. On the travel side, it is split between Hotels, Motels, and other lodging properties with an 11.1% increase and Airfare with an 18% decrease. Although the drop in airfare prices is probably related to the recent Covid Omicron wave.
While wages are not rising in correlation with inflation, it makes it harder for the average person to sustain their quality of life. And for low-income people, it makes it even harder to survive. Thus, we all pay the price. The graph below shows that from 1983 until 2013, the median income increased by only $5,000. Although, from 1983 until today, it increased by an average of $15,000. This means that the average overall years are falling far behind the increase in Consumer Price Index (see below).
Data: Federal Reserve Economic Data
What Causes Inflation?
In economics, inflation refers to a general progressive increase in the prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money. (Source: Wikipedia)
There are three main causes of inflation: demand-pull inflation, cost-push inflation, and built-in inflation. Demand-pull inflation refers to situations where there are not enough products or services being produced to keep up with demand, causing their prices to increase.
Cost-push inflation, on the other hand, occurs when the cost of producing products and services rises, forcing businesses to raise their prices.
Lastly, built-in inflation—sometimes referred to as a “wage-price spiral”—occurs when workers demand higher wages to keep up with rising living costs. This, in turn, causes businesses to raise their prices to offset their rising wage costs, leading to a self-reinforcing loop of wage and price increases.” (Source: Investopedia)
What is Happening Right Now
What seemingly causing this wave of inflation? First and foremost, in my opinion, it all begins with oil prices. When crude oil prices increase, it has a domino effect. Pushing prices up across all segments. From manufacturing, commodities, and transportation to consumer staples such as electricity, food, and gas.
Thus, if crude oil is the same crude oil, meaning that the product stays the same and the price changes up or down, it strengthens the need not to be dependent on crude oil, which is subject to high volatility. For example, as we saw in 1980, during the energy crisis of the ’70s when the Iranian revolution occurred, and as a result pushing oil prices up significantly, the inflation that year in the US was 14.5%.
Crude oil is not the only cause to blame here. It seems that every time prices are going up, there’s a trend across the board, that companies take advantage of the situation and raise prices in higher numbers than actually needed.
The main problem is that eventually, crude oil will run out since it is not a renewable resource. Therefore, if we won’t be prepared for that moment, it will cause hyperinflation, wars, and unrest around the world.
So how can we be prepared, you probably ask yourself. The answer is quite simple. Investing and building renewable sources infrastructures and releasing the tight grip of oil prices on our daily lives and political interest. And of course, will be significantly better for our planet. Renewable energies are a variety of resources, not just Solar and Wind. Many other solutions can easily supply our energy needs for as long as we live. The following resources are responsible for 97% of all renewable resources:
How Does the Labor Market Contribute to the Situation?
During the pandemic, the Labor Market has experienced a sharp decline in unemployment rates and opening jobs and leading many companies to struggle with staff shortages. Furthermore, the recent wave of Coivd Omicron also caused turbulence in the labor market. That is another reason for the recent inflation. It also shows what turbulence in the markets can cause. Nonetheless, taking into consideration that at other times, government stimulus funds are not a tool that will be used as much as it has been used during the pandemic. The stimulus funds played an important role in the current wave of inflation since large sums of money (cash) in the markets depreciate the value of the money.
Another phenomenon we have seen recently is an abnormal rate of Job quitting by employees. This leads to more uncertainty and requires employers to invest in employee training and education.
Why It Is Worse Than You Think
The data shows, that the fluctuations in oil prices lead to unstable inflation rates, such as the Abadan Crisis (“Iran Oil Crisis”) of 1951-1954, or the 1973 oil crisis, the first worldwide oil crisis, in which prices increased 400%. Although, in normal times, when there is no crisis, we do experience price changes in items we consume every day. Thus, it could create a situation where the cost of living is soaring while wages and social security benefits only slightly increase. Falling far behind the CPI increase rate, as we saw at the very beginning. As a whole, crude oil creates wealth for specific countries and is sometimes subject to a certain political agenda.
New Era
The new era is all about renewable resources, not only because it is sustainable, it is common sense. Thinking of it, we have only one world that we cannot replace. Therefore, making the right choice for humanity sooner than later can literally save humans a lot of money and pollution.
