SIOUX FALLS, S.D. (KELO) — People are already living with inflation but what about people outside of the U.S.?
“Everybody around the world is experiencing some kind of high inflation and low unemployment rates,” University of South Dakota economics professor Mandie Weinandt said.
“The supply chain shocks and the war (in Ukraine) and the pandemic effected everyone globally,” Weinandt said. “We are all experiencing our own cultural version, but we’re all experiencing kind of a similar economic outlook.”
The key with inflation is that prices, or costs, increase faster and more than our wages do, Weinandt said of a basic explanation of inflation.
The factors at play in 2022 include supply chain problems, the pandemic and the war in Ukraine, she said.
Increases in wages don’t generally adjust in real time to increased costs, she said.
Within those factors there are other influences.
Demand for goods and services decreased during the pandemic as people may have been laid off and/or didn’t spend as much money. As the pandemic situation improved, demand increased but production was not able to keep up, Weinandt said.
At the same time, unemployment rates began decreasing and it was hard for some companies to find workers, she said. Companies may have increased pay, moved to more automation or changed operations which all increased the cost of a product.
Labor shortages and other factors also impacted transportation of goods in the supply chain, according to multiple economics experts.
The war in Ukraine has negatively impact prices in the U.S. and around the world, Weinandt said.
“…With inflation, economic growth or economic changes and economic problems, there’s never one simple fix,” Weinandt said. “I often hear ‘Well if they would just’ and it’s like who is the ‘they’ and what is the ‘just.’ Because it’s a really complicated thing and they’re so many actors and so many players.”
The federal reserve has been increasing the federal interest rate as a way to combat inflation.
Weinandt said the goal with the interest rate is for inflation to be at about 2% annually.
That can help slow the economy and create long-term stability with costs and interest rates.
The federal reserve is adjusting as it learns new information, the interest rate was increased recently because data showed the prior increase was having as much of positive impact as expected, Weinandt said.
As, or if, demand for goods and services decreases and production is maintained and improves, that will improve the economy.
The federal reserve decreased the interest rate when the pandemic started because of concerns about job losses and all the things that COVID stopped, she said.
“I think it’s worth noting that in the previous decade up until the last year and half, inflation was at or below 2%,” Weindant said.
The federal reserve can’t control the supply chain or the war in Ukraine, she said.
Inflation is here but is a recession looming?
Weinandt said she doesn’t have a crystal ball but said a recession is possible. But, unlike the Great Recession of 2008, there’s no big economic bubble to burst like there was in that recession, she said. The economic bubble that burst in 2008 was in the housing market.
Weinandt said although there are several big factors in play for the U.S. economy, any recession would probably be more mild than those of the recent past, and therefore “hopefully more manageable.”