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By Margaret Adams
During the recent midterm elections, citizens heard a lot from politicians (especially Republicans) blaming inflation on the current Democratic administration. This blame was for the purpose of gaining votes. People are no doubt concerned about the rising prices of gasoline, food, housing, and other goods and services. The reason for the increases in prices is related to the current rate of inflation in the United States and around the world. In reality, politicians do not have the impact on inflation that was promoted to the American people during the election season.
In simple terms according to Forbes magazine, inflation is the gradual rise in prices along with a decrease in the purchasing power of your dollar over time. The main components of inflation are supply and demand. An increase in demand will usually lead to an increase in price; also a decrease in supply will lead to an increase in price. Both of these situations are determined by the market. The market is made up of consumers and corporations that control goods and services. The government’s role is to monitor the cost of goods and services via the Consumer Price Index and The Federal Reserve (the central bank in the U.S.) which controls the supply of money and the interest rates.
Currently, U.S. citizens are paying more for gasoline at the pump and to heat homes, and the question is: why? The price we pay for gas is composed of the price of crude oil (which is determined by the countries producing crude oil), the cost of refining crude oil into gasoline, the distribution and marketing of gasoline, and the federal, state, and local taxes charged. According to Heritage.org, the cost of crude oil is 54% of the price, refining is 18%, marketing is 17% and taxes make up 11% of the price we pay. Shipley Energy.com says 75% of natural gas in the world comes from the Middle East and Europe (including Russia). The U.S. provides 4% of the world’s natural gas but enough to supply 90% of the U.S. needs. Interestingly, according to a July 29, 2022 article in The Guardian, oil executives and shareholders reaped the benefits of high energy prices.
The increase in the prices we pay for food is due to multiple factors. These factors include supply chain disruptions, which resulted from increased changes in demand due to the pandemic. This led to labor shortages that disrupted the production and transportation of food. Also contributing to the increase in the price of food are war (especially the war in Ukraine) and climate change, causing droughts in some areas.
Inflation has decreased the purchasing power of home buyers due to rising interest rates. It has also increased demand for rental housing, causing rents to rise.
The biggest takeaway from our current state of inflation is the segment of the population that is most negatively affected. It is no surprise that low-income earners and people living paycheck to paycheck struggle the most because they do not have the additional disposable income to keep up with the increase in prices. These households need to make the most adjustments. These adjustments may be to drive less, become smart shoppers looking for bargains, and cut back on spending that will lessen the impact of inflation.
