Inflation has grown political recently, but should it?

Sam McVey, Assistant News Editor

Around the country, Americans are growing uneasy with the higher prices they are paying for the same items and services compared to years past. Nationally — and in the Philadelphia area — inflation rates have more than tripled compared to 2020; and, as usual, the issue has grown political. Locally, stickers are appearing in stores and on gas pumps attributing the rising prices to President Joe Biden, while national movements make similar claims criticizing his handling of the economy.

Although many conservatives are looking to Biden as the source of the problem, economists argue that the President has little to do with inflation.

This, of course, begs the question: Why are prices rising?

The most critical aspect of recent inflation is supply chain shortages and delays. The most challenging obstacle to ports and other break-of-bulk points has been the coronavirus.

China, the world’s leading manufacturer, has seen several major ports close recently due to COVID-19 outbreaks amongst workers, causing major delays. Similar incidents have occurred in the U.S. and other countries, leading to a widespread labor shortage phenomenon.

In addition, vaccination rates among supply chain workers are a formidable obstacle for global commerce. While many workers are hesitant to return to the workplace because of COVID concerns (which were exasperated by the emergence of the Omicron variant), many remain steadfast in their commitment to remaining unvaccinated. This presented a seemingly no-win situation for supply chain employers, who are struggling to find workers that will both return to work and comply with a vaccine mandate.

These challenges do not bode well for American consumers, who are buying at unprecedented rates. A report from the Bureau of Economic Analysis found a 25% increase in American spending on goods and a 7% increase in service spending from 2019. The basic relationship between supply and demand is clearly illustrated here; as demand increases and supply struggles to keep up, prices rise.

Meanwhile, the Federal Reserve — America’s central bank and the institution tasked with managing the economy — has maintained a largely hands-off approach, hesitant to interfere with a recovering economy. Jerome Powell, the current chairman of the Fed, has cited temporary pandemic obstacles as the source of inflation, instead urging patience.

Recently, however, the Fed is considering taking action as inflation persists and pressure grows.

In a December meeting, a plan was established that would accelerate the stoppage of the Fed’s large-scale bond-buying program faster than anticipated; such bonds were bought by the Federal Reserve at the beginning of the pandemic to lower borrowing costs across the economy and prevent market interferences. In addition, plans are being developed to raise interest rates to curb inflation, Bloomberg News reports.
Ultimately, while there is hope the inflationary pressures brought about by COVID and supply chain difficulties are nearing an end, there is still much left to be seen.