OMG Why are Prices so High?

Last year, inflation rose to 7% in the US, the highest increase since 1982. That increase hit our pockets. There are several factors that are part of inflation, here are the 4 most relevant factors:

1. Increase in money supply: The health crisis closed down companies, bringing unemployment rates up. The government reacted by giving economic support via “Covid checks.” The Fed dropped interest rates to further stimulate the economy.
2. Energetics: OPEC agreed to reduce oil and gas sales, hiking prices around 30%. Besides that cartel decision, small energy producers were casualties of the crisis and to recover that production takes time.
3. Supply chain delays: Energy issues led to high transportation costs and ships stuck in ports hinder the supply chain and, therefore, the production of goods.
4. Supply reduction: People have more money to spend, but companies have not caught up their demand.

Several factors affect inflation and our pockets. Last year, the Pandemic changed several industries and daily activities, which accumulated an inflation higher than any point during the last 40 years. This year, markets are normalizing as well as our daily activities and even interest rates. So prices should not grow as fast as last year.

Source: The Bureau of Labor Statistics

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