Because this semester I added an economic major minor. I learned some economics and also read some articles and news about inflation. Since inflation is seriously affecting the American economy and the daily lives of the American people, I would like to share my thoughts on this inflation.
From the perspective of economic theory, an annual 2% increase in the US consumer price index (CPI) is conducive to the development of the US economy and is healthy. This is also what the federal reserve board (Fed) wants. However, the recent increase in the CPI in the United States is as high as 7%, which is very high. Rapidly increasing prices have brought great economic pressure to the lives of the American people, and have also seriously affected the net profit of many American companies.
So what are the reasons for the current inflation problem? First, since the outbreak of the covid epidemic in 2020, the US government has issued many national debts and issued many simulate checks to ordinary people in order to protect the economy. In addition, the Fed has also carried out a substantial interest rate cut policy and implemented a financial policy of unlimited quantitative easing (QE). One of the effects of these policies is that there is too much money in financial markets and society. Because of too much money, people’s consumption demand for commodities rises. This leads to a surge in commodity prices. In addition, because there is too much money in the financial market, this leads to an increase in the trading liquidity of the asset, which also leads to an increase in the price of the asset. Therefore, in the past year, the soaring prices of various commodities and assets such as real estate, commodities, automobiles, stocks, etc. are one of the main reasons for this round of inflation.
The second main reason is the supply chain shortage caused by the epidemic, which is also one of the main reasons. There are many reasons for the tight supply chain, here I want to talk about the most important reasons that have affected the supply chain in recent months. I think the Zero Covid policy that China has implemented over the past few months has actually had a huge impact on the world supply chain. A strictly enforced Zero Covid policy will cause many cities to “shut down” due to the Covid-19 pandemic. Many factories will suspend production due to this. For example, Shanghai has been shut down since April because of the epidemic. Tesla’s Shanghai factory was also forced to shut down. Because China is currently a very important industrial manufacturing country in the world, known as the world’s factory. Many items in US grocery stores are made in China. Therefore, when the export of industrial goods from China decreases, it will naturally lead to a shortage of goods in the United States. Due to the loose financial policies of the US government mentioned above, the consumption demand of Americans has increased, but the supply of goods has been insufficient in the past few months. This has led to an imbalance in the supply and demand of goods consumption in the United States over the past few months, resulting in more demand than supply. As a result, the prices of various consumer goods in the United States have risen sharply, leading to serious inflation problems.
In addition, due to the Russian-Ukrainian war, the world’s oil shortages. The rapid rise in oil prices is also one of the important factors leading to inflation in the United States. In conclusion, these problems are the main reasons for the inflation in the United States this time. If these problems are not solved, the inflation problem in the United States will be difficult to solve. The Biden administration still has a lot of work to do.
