WHAT ARE THE BIGGEST DRIVERS OF INFLATION?

The situation with inflation in the US is gradually normalizing in 2023, as evidenced by the slowdown in price growth compared to 2022. Last year, the inflation rate reached a record 9.1%, which was another peak in the last 40 years. Now, this trend has been reversed thanks to flat grocery prices, higher interest rates by the Federal Reserve, and other government measures. But for this trend to be stable and inflationary processes to enter their more or less acceptable course of 2% per annum, a lot of work will have to be done. To make forecasts for personal or business investments, it is important to understand what factors are the main drivers of inflation. 

In Searching for Causes of Inflation

Determining the exact causes of inflation is necessary not for the sake of mere curiosity but to develop counteracting measures. That is why many leading US economists and financial analysts constantly analyze the markets and give their recipes on how to answer negative processes. However, the origins of inflationary processes do not always lie in the domestic economy. Sometimes, challenges are so powerful and beyond the control of the government that there is no simple recipe for reversing inflation. Here are just some of the factors that contributed to the inflation surge in 2021-23:

• The Covid-19 pandemic, which has destroyed many economic ties and deprived small and even medium businesses of support.
• The war in Ukraine and the need to impose sanctions against Russia, which affected the usual trade relations.
• Natural disasters and deteriorating conditions for agriculture in different regions of the world, which influence food prices in the global market.

In such circumstances, rising prices in the US domestic market are a response to global cataclysms, which require the implementation of countermeasures in a wider arena and using a broader arsenal of means that go beyond the usual domestic regulation.

Drivers of Inflation in the Domestic Economy

A more narrow perspective allowing transition from the global arena to the national one shows a number of indicators that set the pace for inflationary processes.

Cost of Housing

Shelter costs can get the top spot in this inflation driver ranking as they are responsible for most of the inflation. As home prices rise, so does rent, which means that millions of Americans are forced to significantly reduce their non-essential expenses in favor of mandatory ones. 

In such a situation, it is not always possible to find money for the implementation of any additional projects, such as the purchase of equipment, home repairs, travel, and much more. However, thanks to payday loans, they can still be carried out even in such difficult conditions. Especially when you have a choice between different lenders, provided by the Payday Depot platform. This allows you to compare loan terms from various providers and choose the most profitable ones.

Energy Supplies

Energy is a volatile asset, and its prices are sensitive to all world political and economic news. However, a sharp rise in energy prices is immediately reflected in the cost of other goods due to higher transportation costs. So, when you see an increase in the price tag at a gas station, this means an increase in prices in grocery and other stores, as well as in the service sector.

Food Prices

Products are classified as essential goods, and therefore, rising prices for them can significantly squeeze household budgets. Switching to a more economical diet may help in the early stages, but in the long run, it can lead to the opposite consequences. Because reducing the cost of food can lead to rising healthcare bills.

Salary Level

An increase in wages as a reaction to inflation leads to the unwinding of the inflationary processes. Companies are forced to raise prices for their products and services to compensate for the cost of paying higher salaries. In this case, the economy falls into a kind of vicious circle, where the population demands higher wages to cope with the budgeting in a time of intense inflation, but this further unwinds its spiral.

Despite the complexity of the situation with inflation in the US, the fact of its gradual decline over the past 12 months indicates that this is not a hopeless situation. Sometimes, you just need to wait until the processes in the global or domestic economy level off and give room for growth. And to do this with minimal restrictions, you can use payday loans, which soften the hard blow of inflation.