Consumer prices are rising at the fastest rate since the Great Recession and the second fastest rate since the early 1980s.
Consumer prices are rising at the fastest rate since the Great Recession and the second fastest rate since the early 1980s. Earlier this year Fed Chair Jerome Powell remarked that we would experience higher inflation on a temporary basis. We are now finding this to be true. The reasons for this round of rising prices can be traced to three main causes. Reason #1: Increased Money Supply Inflation is most likely to occur whenever there are too many dollars chasing too few goods. This is simple supply and demand. When the pandemic struck, the Federal Reserve and Federal government, together, flooded the economy with more dollars. How much more? In January 2020, the M2 money supply was around $15.41 trillion. This past April, only 16 months later, the M2 money supply was at $20.11 trillion, representing an increase of 30%. While this may have boosted the economy and helped avoid a more serious recession, it also contributed to higher inflation. Reason #2: Declining Value of the Dollar Whenever the money supply increases too rapidly, and there are too many U.
