As inflation slowed down for the tenth straight month in April, prices have subsided in certain areas, such as groceries, while other products, like gas, have rebounded. Consumers prices had a 4.9% increase from last year, but are down from 5% in March and 9.1% last June, which marked a 40-year high.
Prices fluctuate in our economy for many reasons but ultimately it results in, inflation. While it is easy to see these changes, it can also be helpful to understand why those price spikes happen.
So, here are some of the causes of inflation, as well as other economic explanations, including what is CPI.
What causes inflation?
Inflation can be caused by many things, such as over-consumption and the economy’s inability to meet the demands for those goods and services. If more people are spending money on goods or services that are not readily available, producers and service providers often raise prices. This allows them to not worry about a significant loss in sales.
Protect your assets: Best high-yield savings accounts of 2023
Inflation also could be caused by a shortage of supply. If there’s not enough goods to meet the demand, this could lead to an increase in a manufacturer’s or retailer’s wholesale costs, which, in turn, would be passed along to consumers through higher retail prices.
Additionally, in certain cases, there is a level of “built-in inflation” within economies, where systems seek to keep inflation at a steady percent. In the U.S., the Fed’s target inflation is 2%. Based on this, businesses can increase prices by 2% each year, and the market will still be competitive. Workers can also ask for a 2% wage raise based on these increases, so they can still afford goods and services.
Just Curious:We’re here to help with life’s everyday questions
What is inflation?
Inflation is a generalized rise in prices. It can occur across the board in an economy, or it could affect individual products or services, such as gas, rent and groceries.
More:Understanding inflation, why prices rise and who it hurts most.
What is a recession?The economic concept explained. What causes and happens during one.
What is CPI?
CPI stands for the Consumer Price Index. It is a metric used by the US Bureau of Labor Statistics to gauge how much the price of consumer goods and services has changed over time.
It can effectively measure inflation in an urban market and give government officials and everyday citizens alike an idea of the health of the overall economy.
