By Nicolas Rontanini
In the wake of the pandemic, the country is still reeling from the resulting economic downturn. The economy was shut down during Covid, effectively halting consumer spending. Once restrictions started to loosen, people were spending more money in a short period of time. As a result, the country has reached a new inflation level, the highest it has seen since 1982. With the recent burst in prices, the question people are asking is whether the inflation level is a temporary or more permanent fixture.
There are some reasons the inflation level has reached the peak it has, one being the pandemic. According to the White House website, the pandemic created a disruption in supply chains. When the economy opened after its closure in March 2020, countless people were spending and traveling, all of which soon yielded a sort of bottleneck effect with high demand. This increase in demand coupled with supply disruptions led to the rise in inflation the economy is experiencing.
As a result, consumer spending is one of the areas affected.
“The price rise is a result of a complex interaction of supply shortages brought on by the pandemic, and the government’s efforts to dampen the effects of the economic downturn by flooding the economy with newly created money,” said Robert Goldberg, clinical assistant professor of business in finance and economics in the Robert B. Willumstad School of Business. “Inflation does not affect everyone evenly. Those with high demand jobs are able to offset the increased costs with higher pay, those with jobs in less demand tend to have salaries that do not keep up with rising costs.”
The prices of consumer products have quickly risen. According to a report in the Bureau of Labor Statistics, the CPI (Consumer Price Index) has risen roughly 6.8 percent, with a 33.3 percent cost increase for energy, and 58.1 increase for gasoline.
With this escalating rise in prices, some economists are not quite worried yet.
“If inflation were to tick up well into the double digits, then I would be more concerned,” said Mariano Torras, professor and chair of finance and economics in the Robert B. Willumstad School Business.
There is, however, still the matter of the impact inflation could have on the economy going forward.
“At best, we will transition quickly to a world of higher, but stable prices and wages, though some will end up better off than others,” Goldberg said. “However, there is a chance that rising prices and wages will prevail for a while, continuing to create dislocations along the way.”
Last year, a survey was conducted by Country Financial, which found that 88 percent of Americans are worried about the rise of inflation. Many consumers have started to prioritize their budgets, and cut back on spending by canceling or putting off traveling, buying less clothes, or budgeting their food.
It is important to note, however, that while the rising prices are concerning to Americans, unemployment and the impact on families are also areas to consider.
“Economists generally place too much importance on inflation and not enough on unemployment,” Torres said. “At present, I would be more worried about the fact that many millions of American families are living at the margins.”
With inflation’s presence, many students may be wondering what tips exist for them to exercise smart spending in the interim.
“This really depends on one’s appetite for risk,” Torres said. “I think that unless one likes to gamble, stay away from crypto and NFTs. Now is not the time to buy stocks either.”