by Annika Olson
While recently working at a local food pantry, I spoke with several families about how inflation has affected their lives. They were all families of color, and each said they had felt the effects of rising prices at the grocery store and at the gas station.
“It’s really hard for us,” one mom told me. “Meat is more expensive, which means we have to stretch our food stamps that much further.”
Another man said that because he drives so much for his job as a construction worker, it’s tough to pay for gas. “Muy caro (very expensive),” he said.
Inflation highest in four decades
This week, gas prices in the United States soared to the highest they’ve ever been. The average price per gallon increased 57 cents in a week. And President Joe Biden’s decision to ban oil imports from Russia because of Vladimir Putin’s war on Ukraine likely will cause prices to spike even further.
Even before the latest rise in gas prices, inflation was at a 40-year high in the United States, with prices rising nearly 7.5% in the past year.
What is inflation anyway? I’ll break it down a bit. And show that inflation has the greatest impact on people of color, rural households and households without college graduates. These are all groups that have already been hurt for decades by rising economic and racial inequality, and they need more than a temporary fix to help.
Broadly speaking, inflation is the rate at which the value of a currency is decreasing and the general level of prices for goods and services is increasing. There are two reasons why inflation changes: supply and demand.
COVID hits supply chain
On the supply side, the United States is experiencing significant supply chain problems due to the pandemic. This makes it more expensive to produce things and, at its core, doesn’t allow as many things (from clothes to cars to food) to be made.
On the demand side, consumers are spending a lot more than they did while being shut inside during the pandemic. Now, people are demanding more goods and services and stores are running at full capacity.
The combination of a significant demand for goods and services and the inability to produce those items at sufficient capacity to meet demand leads to inflation.
While this is a frustration for all of us, a Bank of America report last fall found that inflation hurts a few groups the most: Black and Latino communities, rural households and households without a college degree.
These categories of people make up a greater portion of working-class communities and have a higher likelihood of working minimum- and low-wage jobs. Due to inflation, they are now spending a greater portion of their income on goods and services on top of dealing with the disproportionate financial strain borne by the pandemic.
Not only are they spending more, but the cost of items on which they spend their money are also rising faster than those in higher-income brackets. A London School of Economics study that used bar code data from products purchased at retail stores found that the prices of items purchased by the bottom income quintile (food, energy, transportation) have increased significantly faster in the past 20 years than the prices of the products (luxury items) purchased by the top income quintile. This means that low-income families experience a rate of inflation that is actually 0.5 percentage points greater than that of high-income families.
Sadly, this fuels the stark economic and social inequality embedded in American society.
Quick inflation fixes won’t help
What can be done?
Economists deal with inflation in a variety of ways. One is through the Federal Reserve, which has begun to buy fewer bonds and raise interest rates, with the goal of getting people and businesses to buy less, which would decrease inflation.
Another way is to get the supply chain back on track, which reduces price increases by pouring more goods into the market and increasing competition.
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