Why Does Everything Cost More?
¿Por qué todo cuesta más?

Due to the Covid-19 pandemic, prices for everyday items shot up. Neither political party directly controls prices, businesses set their own prices—only in socialist or communist systems does the government set prices.

• This happened due to supply-chain problems caused by the pandemic. But in the U.S., the party in power often gets blamed for high prices.

Inflation happens when businesses keep raising prices over time. While a small amount of inflation (2-3% per year) is good for the economy, a major disruption, like the pandemic, can cause inflation to spike a lot. That’s what happened.

Effects of the Covid-19 Pandemic on Prices:
We live in a global economy where products and services from one country are sold worldwide. For example, a product assembled in one country might include parts from many other countries. The supply of finished goods relies not just on the final manufacturer, but also on the producers of individual parts as well as the shipping systems.

During the pandemic, manufacturing slowed down because factories were closed. This reduced the need for shipping, which disrupted supply chains. Remember the empty grocery shelves and the toilet paper shortage?

As the pandemic eased, people started getting out and buying more. However, it took time to restart factories and rebuild supply chains, so demand outpaced supply and prices went up quickly.

Another Factor:
A few large global companies control the prices of many consumer items, like food and household goods. With little competition, it was easy for these companies to hike up prices beyond what was necessary to cover their higher costs. Which companies did this? Click here Corporate America price increases.

Controlling Inflation:
To slow demand until the supply of products could catch up, the Federal Reserve Board raised interest rates. This limited the amount of money people spent and lowered the demand. Now, as supply chains have been re-established and consumers are outraged about high prices, many of these companies are lowering prices again.

The U.S. Economy Today:
Since the pandemic, high rates of inflation have been a problem worldwide.

• The recovery of the U.S. economy from the massive disruption caused by the pandemic has been the envy of other countries.
• In the U.S., inflation has slowed more quickly than in other developed countries.
• In September 2024, the inflation rate was 2.44%, well within the target rate of 2-3%. Unemployment is low (around 4%), and economic growth is strong.
• U.S. workers have seen large increases in their paychecks.
• The US Stock Market is at record highs, boosting savings for Americans.

Because of this strong performance, the Federal Reserve Board recently cut interest rates to allow demand to gradually increase again.

Officials at the World Bank stated that “U.S. growth is exceptional.” The Managing Director of the International Monetary Fund described it as “remarkably strong” and observed that “The U.S. is the only G-20 economy whose GDP (gross domestic product) level now exceeds the pre-Pandemic level. This is good for the U.S., and it is good for the global economy.”

Written by Tim M.