What are the main causes of inflation in the US?

Inflation is falling, but consumer prices are still almost eight percent higher than a year agoo. The news is unsettling for many families as the holiday season approaches and many evaluate their travel and gift-buying plans in the coming weeks.

The current inflationary crisis is felt not only in the United States.

Germany has seen price increases 10.4 percent since October 2021and consumers Argentina is trying to keep up with historical inflation, which will be 73.5% higher in January 2023 compared to the same period this year..

Around the world, supply chain disruptions caused by the Covid-19 pandemic, the energy crisis caused by Russia’s invasion of Ukraine, and corporate greed are driving up prices in critical markets, including food and shelter.

China’s Zero Covid Policy

After nearly three years since the start of the Covid-19 pandemic lockdown, some in China have had enough. The country has continued to move forward with its “zero covid” policy, with hundreds of protesters in several major cities calling for an end to the rules. While many media outlets in the US and Europe are reporting on the protests, highlighting the fact that many have anti-government sentiment, there is no good data on the popularity of the policy among the population.

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This does not mean that those who stand up for what they believe in are not brave. Protesters, many of whom are students, are taking to the streets and are doing so under the threat of arrest. In any system of governance, human dissent will exist, and suppressing those who hold opposing views has rarely proven to be a sustainable strategy for establishing dominance and control.

The protests come as China reports 40,000 new cases of Covid, a recent record for the country of more than a billion people. When cities shut down, it affects global supply chains, as many pass through China and depend on the labor of Chinese workers. If these workers have to stay at home, the production of goods stops and can create shortages. The basic principles of national economy remind us that prices will rise when the supply of goods is limited and demand does not decrease.

Inflation and the global energy crisis

After the Russian invasion of Ukraine, energy prices skyrocketed as Russian production fell and countries began imposing import bans on national energy goods.

U.S. pump prices rose as companies sought new markets to buy crude and other refined petroleum products. As gas prices rose, inflation took on a new lease of life as the rise in the energy market began to affect transport and logistics costs for other goods.

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On the other hand, gas prices fell on average in September 4.7 percent across the U.S., those gains were nearly wiped out when a 4.4 percent increase was seen in October. Also, natural gas prices remain twenty percent higher than a year ago. With the price of fuel oil rising by 68.5 percent, households are expected to pay more for utilities this winter.

Good/service Year-on-year growth (%)
Food at home (groceries) 12.4%
Gasoline 17.5%
Utilities (natural gas) 20%
Electricity 14.1%
New cars 8.4%
Used cars 2.0%
Clothing 4.1%
Shelter 6.9%

As the war in Ukraine continues, the results are devastating on a humanitarian level both inside and outside the country. As winter approaches, concerns are growing in Ukraine and its neighboring countries about how they will be able to provide their residents with the necessary energy resources to keep warm.

In the United States, it may be cost, not access, that could be a barrier for many householdsthe federal government estimates that utility bills could be twenty-eight percent higher than last winter.

Corporate greed continues to fuel high energy prices

The news comes as the US Energy Information Administration also reports that while oil and gas companies are posting record profits, capital spending remains low.

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“As in recent quarters, companies kept capital spending below historical levels and diverted increased cash from debt reduction operations, share buybacks and dividends,” the report said.

For context, in 2019, when oil companies earned just under $40 billion, they invested more than that amount in capital expenditure. However, by October 2022, these companies had generated more than $60 billion in revenue and only about $30 billion in capex, which could keep prices high as production is unlikely to increase significantly.

The Biden administration has tried to encourage companies to increase production and refining capacity, saying that if crude prices fall, the government will buy directly from them to supplement the country’s strategic supply.

Domestic production has not changed since the White House announcement in late October, Since September, it has fluctuated between 11.9 and 12.1 million barrels per week.

The US could face an emergency tax

If the White House’s offer to oil companies doesn’t force them to increase output, the idea floating around Capitol Hill and statehouses of a windfall tax could emerge.

At the federal level, the likelihood is lower than in states like Californiawhere the idea seems to have more momentum. However, CalMatters has reported that the Legislature may not pass the measure until January.


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