TCA Explains: Why Is Inflation So High Right Now?

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You probably don’t need us to tell you: the prices of gas, rent and food have soared in the past year.

On April 12, the U.S. Department of Labor revealed the latest Consumer Price Index — a measure of the average change over time in consumer prices — had jumped 8.5% in March.

It was the sharpest year-over-year increase since 1981.

Some of the largest price surges were for gas — up 48% from March 2021, grocery store food prices—up 10% in the past year, and airline prices — up a whopping 10.7% in the last month alone.

The shelter index rose 5 percent over the last 12 months, its largest 12-month increase since May 1991.

So why is inflation so high right now, and are prices going to keep trending up? TCA explains.

Supply and Demand

Inflation is a response to supply and demand. 

When demand is high, but supply is low anywhere in a supply chain, then prices go up. 

Because of shipping and production delays due to the pandemic and increasing global conflict, it’s been difficult for manufacturers and producers of pretty much everything to get supplies, Financial Freedom author Grant Sabatier said. 

“This means the cost of pretty much everything has increased and that cost gets passed onto you, the consumer.”

Federal and State Stimulus

There has also been tremendous federal and state government stimulus to help consumers during the pandemic, Sam Dogan of Financial Samurai explains. 

The more money that is created and delivered freely to consumers, the more money tends to be spent on goods and services. 

“The more money that gets spent on goods and services, the higher prices go given the rise in demand.”

Plus, there’s been a little “light corporate price gouging” going on, according to the earnings reports, Jess ‘Piggy’ Fickett from Bitches Get Riches added. 

Inflation doesn’t just affect the cost of goods and services, but everything, she said. 

“Your rising cost of rent has been years in the making and is part of larger systemic issues.”

Inflation Should Start Coming Down This Year

However, the three said inflation shouldn’t last forever and the prices of certain items should start to come down as supply chains get back to normal. 

“At the grocery store, I’d estimate that prices should start coming down towards the end of the year, or early in 2023,” Sabatier said. 

He pointed out that rental car prices have recently started dropping because there is more supply, and same with housing prices in some markets. 

What About Wages?

Wage stagnation has been lowering individuals’ buying power for years now, Fickett said. Most people’s incomes have not kept up with inflation since the 80s.

“Coupled with rising inflation, it can feel like you’re not even treading water—you’re drowning.”  

However, Fickett said we’ve seen historic gains in labor rights recently thanks to the collective action of labor unions and worker advocates.

“Join together to advocate for yourselves in the workplace. It’s unfortunate that inflation feels so out of our control, but collectively, we still have influence over our wages.”

However, raising salaries can also increase inflation, Fordham University Senior Lecturer in Economics Giacomo Santangelo said. 

“If we all get a raise that’s going to increase prices,” he said, explaining that companies will pass on increased labor costs to their consumers.  

Save Now, Ask for a Raise

Meanwhile, Sabatier advises that for now, it’s best to save as much money as you can by putting off large purchases until prices come down in the future. 

He told consumers to keep your expenses as low as possible until both inflation comes down and salaries start going up faster. Ask for a raise now, he added.

“Most employers have to pay up to 50% of your salary just to find a replacement in this market, so they are likely much more open to giving you a larger raise just to keep you.”

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