Inflation In The United States: A Brief Overview
Inflation has been an issue faced by the United States and its citizens for decades, due to its propensity to drive up prices, reduce purchasing power, and cause economic hardship for their citizens. While periods of both high and low inflation have been seen, nobody desires a high inflation rate, because of its destructive power. This article will learn about the history and current state of inflation in the United States, and explore the implications of rising or falling prices on the country’s economy.
What Is Inflation?
Inflation is generally defined as a sustained increase in prices of goods and services within a nation. This rise in prices happens across the board and reduces the purchasing power of individuals and businesses. The rate of inflation is defined by how quickly prices change over a given period of time, such as “annually” or “monthly”. Inflation rates tend to differ between nations due to their respective economic systems, governmental policies, and available resources.
History of Inflation in the United States
In the United States, inflation has been an issue for centuries, and to a lesser or greater degree, has been present in the country since the 1800s. Inflation rates have varied across time as government policies, economic events, and wars have affected the economy of the United States.
During the Civil War, for example, prices doubled and tripled due to the increased military spending that was necessary to fight the war. This doubling of prices is an example of hyperinflation, when prices increase by tens or hundreds of percentage points in a short period of time. In the 1920s, during the Roaring Twenties, inflation was also relatively high: prices rose by 10 percent per year throughout the decade.
The United States was able to keep inflation relatively low throughout the 1930s, which is known as the Great Depression. After 1945 and the end of World War II, inflation remained low for a few decades, until the 1970s and the period of stagflation, when the inflation rate rose again. Since the late 1970s, the inflation rate in the United States has generally been well below 5 percent, with a few exceptions.
Causes of Inflation
Despite its history, the causes of inflation are not entirely clear and depend largely on the economic conditions of the country and the interventions of the government or central bank. Generally, the main causes of inflation include:
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Increases in the supply of money: When the amount of money in circulation rises faster than the amount of goods and services available, prices tend to increase. This is because when the amount of money increases, people have more to spend and cause demand to rise, while the supply of goods and services remains relatively unchanged.
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Increases in demand: When the demand for goods and services increases faster than the supply, prices tend to rise. This can be caused by factors like population growth or increased consumer spending.
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Government policies: Government policies can cause inflation when the government spends more than it earns, leading to an increased money supply. This can also occur if the government increases taxes, as this reduces the amount of money people have to spend.
Current State of Inflation in the United States
In the United States, as of 2019, inflation is relatively low and stable. According to official statistics from the Bureau of Labor Statistics, from January to April 2019, the inflation rate was only 1.8 percent. This is unchanged from the average inflation rate in the United States for all of 2018, which was also about 1.8 percent.
The Federal Reserve, the central bank of the United States, has set a target inflation rate of 2 percent. This target rate is generally seen as desirable because it allows the economy to grow while keeping prices stable.
Implications of Inflation in the United States
Inflation has both good and bad implications for the people of the United States. Those who benefit from inflation tend to be those with large amounts of money, as their assets tend to appreciate faster than the rate of inflation. Therefore, as prices rise, the value of their assets does as well.
For those who have less money, however, inflation can be damaging. When prices rise faster than wages, it can make it difficult for them to maintain their standard of living. Additionally, if inflation is too high, it can lead to a decrease in the value of money, and increase in the cost of the essentials.
Inflation has been an issue that has plagued the United States since its founding, and one that continues to this day. Inflation can have both positive and negative implications, depending on who is affected and the level of inflation. In the United States, as of 2019, inflation is relatively low and stable, which is beneficial for the economy as a whole.
