There are multiple causes of inflation
The current high inflation rate can be attributed to many different factors, many of which are a result of the Covid-19 pandemic.
Gapen pins rising prices on three general causes — increases in household demand and supply-chain shortages due to the pandemic, the war in Ukraine and the presence of a strong labor market.
Generally, the story goes something like this: At the start of the pandemic, consumers began spending less because of lockdowns, and in turn, started saving more. Then, when Covid-19 restrictions eased, people started spending more again. Companies, however, couldn't keep up with this increased consumer demand — many of them had reduced production because of the pandemic and experienced shipping delays as well as shortages in labor and key inputs.
The result of all these things? Higher prices for most goods and services.
While price increases were seen across multiple categories in June, some of the largest price hikes occurred in gasoline, shelter, and food — the year-over-year increase in food prices was 10.4%, while for shelter it was 5.6% and for energy prices, 41.6%.
Shelter, food, and energy are also the major categories that make up the Consumer Price Index, accounting for nearly 54% of the entire index.
Though energy commodities such as gasoline and services such as electricity are not weighted heavily in the Consumer Price Index, energy prices have also risen significantly, with gas prices increasing 60% year-over-year.
While gas prices have declined in the past month, they still remain high — the American Automobile Association reports that the national average for a gallon of gasoline is $4.28, as of July 28.
Just as there are many causes of broad-based inflation, there are many factors that have given way to higher energy prices as well. Perhaps most notably is Russia's invasion of Ukraine and Western countries' resulting sanctions which put severe limits on the import of Russian oil. Both events played a significant role in rising energy prices and supply-chain issues, as has fluctuating consumer demand for gasoline.
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