U.S. inflation increased 5.0% for the 12-months ending March 31, 2023. Prices for energy along with used cars and trucks fell by 6.4% and 11.2% respectively, while all other items rose. For example, food prices remain high as food inflation increased 8.5% over the past 12 months. The cost of shelter rose 8.2% and transportation services increased 13.9% during the same period. Will the Fed continue to raise rates? Will the U.S. avoid a recession? What about inflation in the rest of the world?
Inflation: Cause
The pandemic has left more than a trail of unfortunate deaths and other health issues. It has left a host of financial problems, inflation being near the top of the list. What caused this recent round of price increases? Inflation emerges when demand becomes stronger than supply. Of course, COVID-19 restricted supply as companies closed and workers were sidelined. Although there has been some improvement, there is still a labor shortage as companies struggle to produce an adequate amount of goods. On the demand side, governments took fiscal policy to a new level. In short, fiscal policy – which includes government spending, has risen to previously unimaginable levels. This excess in spending caused demand to spike as COVID shuttered the supply chain. The result? Inflation is running well above historical norms. Moreover, this is a global concern (more on that in a moment).
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