What’s Causing Higher Prices?

What’s Causing Higher Prices?

Inflation continues cutting into Americans’ budgets.

Why it matters: Understanding the true causes of inflation and price increases is crucial for consumers and policymakers to make informed decisions. Blaming businesses for “greedflation” is not only inaccurate but also ignores the underlying economic factors at play.

Details: Inflation is the result of supply and demand, particularly too many dollars chasing too few goods and services.

  • During the pandemic, supply chain shocks and a tight labor market limited supply, and fiscal policy boosted demand. This created broad-based price increases.
  • On top of that, monetary policy greatly increased the money supply.

Be smart: Businesses responded to changes in market prices. They did not cause them. Businesses must raise prices when input costs rise, or they see their margins shrink and start losing money.

Looking ahead: While the Federal Reserve continues fighting inflation by raising interest rates, policymakers can act by easing regulations, reducing tariffs, and increasing domestic energy production.

Bottom line: Don’t blame “greed” for inflation. There are clear and well-understood economic factors causing higher prices.