Tech professor explains ‘extraordinary’ inflation levels, not seen in 40 years
LUBBOCK, Texas (KCBD) - Over the last year, everything including groceries, rent and retail is 7.5% more expensive than this time last year, according to the Consumer Price Index.
Economists describe this year’s inflation as extraordinary, the highest it has been since the 1980s.
The Consumer Price Index Measures the cost of over a thousand items, including food, clothes, rent, education, transportation and medical costs.
For decades, CPI rates rose 2% each year. Economics Professor Michael Noel said 7.5% is extraordinary, because we’re experiencing three types of inflation simultaneously.
Demand-pull inflation is when there is more of a demand for goods and services than what the economy is able to produce.
“Everyone wants to get back out there and everyone wants to buy things. And there’s not enough people to actually supply those things,” Noel said.
Cost-push inflation is when the costs to produce goods and services increase, causing the prices to also increase.
“A lot of people took early retirement, some other people decided to take some time off of the workforce to stay with their kids - different things. And because of that, wages are going up, prices are going up,” Noel said.
Built-in inflation is when workers expect their salaries to increase to maintain their living costs, which contributes to the price of goods and services rising.
“When prices go up more, people need their wages to go up. It’s called the price wage spiral, and we’re in it,” Noel said.
But Noel said things can change. The Federal Reserve can change the rate on government bonds, which will affect how banks borrow from other banks. That trickles to the rest of the economy.
“To affect the interest rates of everything, including on savings accounts and mortgages. When those interest rates go up, then people are going to save a little more, buy little less, invest a little less. And that’s going to pull demand back,” Noel said.
It’s unclear how fast the rates will change, because if they change too fast, we could experience a recession.
We had a recession when the pandemic first begun, because everyone was in quarantine. Raising interest rates too quickly could cause another one.
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