MARK-TO-MARKET: Inflation: what drives prices up? | Business and Economy
Inflation is the year-over-year increase in the prices of consumer goods and services. Of course, inflation often elicits a negative response. Let’s be honest, are either of you yelling, “Yes! Prices increase! While you are other shoppers at your local retail store’s checkout? But from an economic point of view, inflation is not in itself a bad thing. Rising prices typically represent dynamic consumer demand for goods and services that ultimately drives our economy forward.
However, the key word is moderation. Historically, the US Federal Reserve’s target inflation rate is 2%. The Fed sees an inflation rate of 2% as the ideal balance between economic growth and rising prices. The Fed is the decision-making body for US monetary policy. By adjusting its monetary policy, it seeks to manipulate spending, investment, employment and inflation to promote economic growth.
But consumer prices have been rising steadily since the start of 2021. The Ministry of Labor’s consumer price index recently reported that consumer prices in April had jumped 4.2% in the past 12 months. . It was the fastest pace since September 2008 and well above Wall Street’s forecast of a 3.6% increase.
There are a number of factors behind this price hike. Global supply chains for materials and components have yet to fully recover from pandemic shutdowns. These disruptions have limited manufacturing output while increasing the cost of the limited supplies available. According to the National Home Builders Association, the current lumber shortage has added nearly $ 36,000 to the cost of building an average single-family home. Ford Motor Company is one of many manufacturers facing a global semiconductor chip shortage. As of March 31, Ford had around 22,000 finished vehicles just waiting for components related to computer chips. Ford announced a series of plant closures on Wednesday.