Although the pace at which prices are rising has moderated, prices are still going up. In 2021, average consumer prices surged 7%; in 2022 they jumped 6.5%; in 2023 prices went up a more tolerable 3.4%, and the latest reading for 2024 shows consumer prices are up 3.5% from the same period in 2023. Cumulatively this puts prices up over 20% since 2021.

As long as consumers’ financial resources increase at the same or a higher rate than price inflation, then there’s no loss of purchasing power. But most people know this hasn’t happened. Indeed, from 2021 to now, the average consumer’s purchasing power is off by 5%.

I mention these statistics to show that inflation is still a problem, which is something most people know. The next question is, why is inflation still a continuing issue?

When inflation began its spurt in 2021 there was an easy-to-understand reason – consumers were trying to buy more than sellers had to offer.  Consumers were flush with cash as a result of the COIVD-19 relief programs enacted in both 2020 and 2021. These programs culminated in $6.5 trillion being rapidly pushed into the economy.  Initially there were few buying opportunities as large parts of the economy had not yet reopened.

When consumers were able to buy, they had what economists call “pent-up demand,” meaning they wanted to buy a lot! Typically this wouldn’t have been a problem, but there was another issue that had emerged – supply-chain problems. So, in short, consumers wanted to really buy, but many of the shelves were bare. In this situation, it was inevitable prices would rise substantially, which they did.

But today, consumers have spent most of the COVID money, and the supply-chain has mostly been fixed. Yet inflation is running hotter than the 1.8% in 2019, before the pandemic….

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