Inflation happens when there is a high demand for goods and services and also due to high consumer demand. When there is a Increase in the cost of raw materials and production costs, and also when people are ready to buy the products even at the highest rate, it causes severe inflation.
In short, if the demand for the product is high and people are willing to buy the product even at the highest rate for a cheap product, it tends to cause inflation. Likewise, in the US market, the inflation rate increased due to the increase in gasoline prices. The ongoing conflict between Russia and Ukraine is wreaking havoc on the economies of many countries, particularly the United States of America.
The United States marked the highest inflation rate since 1981. The main cause of inflation is the increase in the price of gasoline. There is an increase of 18.3% in gasoline prices. According to the Global Petrol Prices website as of April 11, 2022, the price of one gallon of gasoline is $4.508.
They also reported that there is a difference in prices among the states. The South of the country has a lower percentage, which is around 5–10%. Meanwhile, in the other extreme, in the northeast, the percentage is higher by 5%. The western side records the highest percentage, which is 20% compared to the national average.
The inflation rate hit its highest peak in 40 years when the Consumer Price Index announced that there had been an increase in prices by 8.5% since 1981, the fastest pace since records began. The inflation rate has been increasing for almost six months straight.
OTHER CAUSES OF INFLATION RATE INCREASE
Due to the coronavirus outbreak, the production process went down as the government announced a lockdown for all employers, including both workers and owners. This lockdown eventually increased the demand for products, and people were willing to buy the cheaper products at a higher price.
The wages of the employees were reduced due to the lack of workers and insufficient capital to produce the products. Small-scale industries, companies, and start-ups suffered a lot due to the outburst of the Corona virus. The pandemic was extended more than one year. During that period, the economy of the United States went down and worsened the pandemic situation with an increased inflation rate.
Not only are the prices of products going up, there is also a rise in the price of services. The workers, or the employees, are asking to get paid more to meet their living expenses. The owners and also the workers are severely affected by the increased rate of inflation. The basic needs like food and rent are also at a high rate, so the common people are not able to fill their needs and wants.
Along with the on-going war between Russia and Ukraine, these aspects also add up to lead the US economy into high inflation.Inflation slowly reduces the value of the American dollar if it is not controlled by taking appropriate decisions by both the government and the Federal Reserve System of the country.
HOW CAN A GOVERNMENT OVERCOME AN INFLATION
The first and foremost method applicable to any government is to use the contractionary monetary policy method. This method helps the government by reducing the supply of money and also by decreasing bond prices and increasing the interest rate. Expenditure and spending by the public should be reduced to halt the increasing rate of inflation. By applying this method, the supply of money among the people will be reduced, which leads to less money going around in the economy.
This situation pushes people to safe-guard their money for future use.
Another step to controlling inflation is by reducing the money supply in the country. This method can be applied in two ways. One is a direct method, and the other one is an indirect method. The government can attract the investors by increasing the interest paid to them or by calling in debts owed by the government body.
The next method that can be applied is that the government can increase imports and decrease exports. This can be done by bringing up the demand for the currency through the exchange rate policy.The Russian-Ukraine war affects not only European countries, but also the rest of the world.US inflation is predicted to rise in the future as it is rising at a faster pace now.
