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Why have we seen higher consumer prices and accelerated inflationary pressures?
The primary cause of inflation is excessive printing of money. The Federal Reserve printed excessive amounts of money through its bond-buying program to provide liquidity and economic support during the COVID slowdown. However, they continued the bond-buying for far too long. The Fed started the bond-buying in March 2020 and stopped in March of this year. The Federal Reserve printed $4.5 trillion from March 2020 to March 2022.
The government went on a spending spree with these printed dollars.
Fed bond-buying (akin to printing money) leads to most inflationary pressures when printed money is spent or given away through government programs. During the last two years, the Federal government ran deficits of over $5 trillion and spent all the printed money on various programs - some of which had little to do with COVID. Our state's budgeted spending increased by 6.5%
COVID supply constraints and the Russian invasion added to the inflationary pressures.
While demand was being stoked by government printing and spending, the supply of goods and services was constrained by COVID restrictions. Lockdowns around the world and supply chain constraints reduced the availability of goods like semiconductors, autos, and home goods. The Russian invasion and the ensuing sanctions created further supply disruption of specific commodities - crude oil, diesel, wheat, palladium, copper, aluminum, and steel. These disruptions added to demand-side inflationary pressures.
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