Inflation Series Pt. 1: Why Are We Pinching Pennies?

The recent rise in prices has caused a rise in frustration for everyday Americans. This frustration has been directed at President Biden, but what can a President really do to slow inflation? What plans are working, and what plans have been shot down by Conservatives? In part one of this series, we will go over what inflation is. Part two explains President Biden’s role.

Why does buying bread hurt the wallet more now than it did last summer? This is because the price of bread has exceeded our wages. Inflation measures the power of our income; or, how much we can buy to have our ideal standard of living.

Standard of living depends heavily on our purchasing power, which is how much money is available for us to buy the bread we want. In order for a family to keep their standard of living through a period of inflation, their purchasing power must at least stay the same or exceed the increase in prices. In other words, we need to be able to maintain the quantity and type of bread, to avoid the effects of inflation.

In 2022, our wages have not been able to keep up with prices, leaving us pinching pennies. How can our President help us maintain the lives we want?

To reduce inflation, we need to be able to measure it first. There are many ways to do this, but we will be using real GDP (Gross Domestic Product) to measure inflation in this article. Real GDP is an inflation-adjusted tool that creates a picture of a country’s entire economic performance and can show inflation in markets that other tools cannot. Real GDP will allow us to look at the growth in an economy without the misrepresentation of inflation.

Prices can change regularly without indicating serious inflation. Economists agree that a small growth around 2% is healthy and expected in an economy. We are experiencing rates around 8.6% currently. When GDP is rising, it is a sign of growth in industries and consumer spending. Inflation is a frequent change in economic activity that a President cannot simply ‘fix.’ Supply and demand are the governing concepts of all markets, and our purchasing power varies with each one.

You’ve probably heard of the argument that we can just ‘print more money!’ to resolve a raise in prices. This is an example of what causes inflation. Fiscal policy is the guiding principle in keeping inflation in check. This type of policy is what determines how the government spends its money. This is mainly the responsibility of the Federal Reserve and other central banks. Policies that inflict monetary discipline are capable of ensuring price stability, but there is no magical right answer to fixing inflation.

During President Biden’s term, there have been huge changes in the international economy that caused the hike in gas prices and groceries we see now. The Russia-Ukraine War has caused massive shifts in the supply-demand of goods which results in inflation or deflation. This region exports a lot of wheat that we use to make bread; hence the rise in bread prices.

These shifts in markets cause prices to soar up or plummet down. Periods of instability are common, but nothing could have prepared the economy for coming out of a pandemic, a war, and supply-chain issues all at once. So, if nothing can prepare the economy, who can help repair it? President Biden is who Americans are turning to. Can a President do anything to slow inflation? In the next article, we will dive into what the rate of this inflation would look like in 2022 with and without President Biden’s help.