Inflation surge is a rise in prices, including the cost of goods and services. It’s a common occurrence after a period of slow growth and high unemployment, as businesses increase their production to meet demand. This typically eats into profits, and when consumers see those lower profit margins they may reduce their spending, further driving up prices. It’s important to bake in inflation rates when creating your budget for the future so you can know how much things will cost versus what you may be paying now.
The COVID-19 pandemic caused major disruptions to global supply chains, leading to sudden shortages of basic goods. This, in turn, drove up prices as manufacturers rushed to cover their costs. Additionally, a variety of government stimulus programs temporarily increased consumer spending power and caused demand to surge, further pushing up prices.
Economists have a number of theories about why the COVID-19 inflation surge was so fast and intense. The most popular theory is that the initial spike was due to market disruptions from the pandemic. This included a decrease in shipping capacity nationwide and internationally, as well as reduced production from many companies. This led to higher than usual price hikes for goods, and the resulting increase in the Consumer Price Index (CPI) lasted through 2022.
Afterwards, the inflation rate cooled down to a more normal level. Since then, the CPI has remained below 2% on an annual basis. However, economists are still debating the reasons for this slowdown in the inflation rate. Some think the initial jump in prices was largely due to demand, while others argue that tight labor markets – best measured by the ratio of job openings to unemployed workers – have been playing a larger role in keeping inflation elevated.
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