Inflation in the United States rose to 8.5% in March, the highest level since 1981, according to the Labor Department’s Consumer Price Index.
Between February and March, inflation rose to 1.2%, the highest month-on-month rise since 2005.
According to many economists and other financial experts, the need for more consumers in the economy – with less supply – is a major factor in triggering inflation. They said the war in Ukraine, in particular, was driving up oil and food prices.
According to experts who spoke to ABC News, the government has limited its intervention.
Experts told ABC News that inflation will be an issue in the coming months and they expect it to last for many years.
Factors that trigger inflation
Consumers have traditionally spent most of their money on services, but demand has shifted toward goods during epidemics, Stacy Distille, a financial journalist and founder of Mind Money Media, told ABC News.
“You saw that breakdown, you could not keep up with that demand by the manufacturers, you saw the challenges that the manufacturers face, you saw the supply chain disruptions because of Govt. That’s the basis of all this,” Distale said.
Experts say that strong consumer demand is not being met with adequate supply, which is a major driver of inflation.
“The biggest factor in raising inflation is the extraordinarily strong demand, because consumers have more money in their bank accounts, lower interest rates to borrow at strong stock prices and a lot of money they have saved by 2020 because they did not spend much.” Said Jason Furman, a former top economic adviser to Barack Obama.
“It has been exacerbated recently by things like high oil prices [Russian President Vladimir] Putin’s invasion of Ukraine, “said Furman.
Some experts believe that the increased demand for incentives has increased.
“We put a lot of demand into the economy, especially the early 2021 U.S. recovery plan, which provided $ 1,400 for everyone,” said David Wessel, director of finance and monetary policy at the Hutchins Center in Brookings.
“And with the benefit of hindsight, we’ve probably put more money in people’s pockets – they want to spend it, but the supply side of the economy can not accommodate the rapid increase in financial incentives and demand from both. People are starting to relax about the epidemic,” Wessel said.
Furman said inflation in the United States is worse than in other developed countries because of government incentives.
“The United States has higher inflation than any other major advanced economy. Probably because we have a bigger financial response. No other country has sent as many checks as we have done,” Furman said.
Other experts agree that incentives have contributed to inflation, but say mass-distributed payments are not the cause. In the hope of boosting the economy, the government issued three rounds of checks as financial relief to Americans during epidemics.
“You can definitely sue … the stimulus package definitely contributed to the inflation rate, but you have no big stimulus packs in Europe and they still see 7.5% inflation,” Dean Baker, senior economist and co-founder of the Center for Economic and Policy Research, told ABC News.
Russia’s invasion of Ukraine raises gas prices “over the roof” and raises concerns about emerging crops from Ukraine, a major global exporter of wheat, Baker said.
“There is a real concern that a lot of it is not being cultivated or exported. And the last two months have seen huge increases in the prices of wheat and many farm products. Or after the war,” Baker said.
What can the government do
Experts say the government can not do much to combat inflation, as increased consumer demand is the main driver of inflation, but they agree that the Federal Reserve should raise interest rates.
“The important thing is that the central bank raises interest rates and starts selling assets. Its goal is to make it more expensive to borrow money to buy a house or a car or to buy plants for a business. It will mitigate demand in the economy, reduce economic growth and slow inflation.” Said Furman.
“How much of it does that is incredibly uncertain,” he added.
Baker acknowledged that “there is no point in having zero interest rates considering the strength of the labor market.”
Baker said that if the government pledged to help reduce oil prices and support the oil market to some extent, it could encourage oil companies burned by the 2014 oil price collapse to accelerate production.
“It’s new enough in the minds of the people that they are reluctant to drill in first.
With such a commitment, Baker said, if oil prices fall below a certain level, the government will buy barrels to recoup strategic reserves and therefore support oil prices.
Wessel suggested that the Biden administration could repeal Trump-era tariffs, which could lower the price of imports; Raise taxes; Or reduce costs to drive demand out of the economy.
What’s coming up?
Inflation may be an issue in the coming months, but experts do not agree on how long it will last.
“I saw some signs [Consumer Price Index] This suggests that we may have gone through a bad phase, but I expect inflation to remain high for another 18 to 24 months, “Wessel said.
Furman said inflation could last for years.
“Some inflation is temporary. I do not think the real inflation rate in the economy is 8%, but it’s not even 2%. So inflation should start to fall a little bit, but it’s unlikely to come anywhere near where the Fed wants to come,” Furman said.
“It will be easy in the years to come. We can get lucky and it will magically disappear. [Or] We may have a recession and it will disappear. However, I think it will last for many years, “Furman said.
“People should plan to raise interest rates, so mortgages and car loans are expensive. They need to plan for higher prices. However, they need to understand that this is a very strong labor market. So there are a lot of job opportunities,” Furman said.