Five Facts on Inflation in 2022

The Big InsightThe unique conditions of the post-pandemic economy and federal government policies have created a new kind of inflation that is proving hard to combat.

Most Americans were not alive the last time inflation was as high as it is right now. And even for those who were, inflation in 2022 is very different than inflation in 1981. The coronavirus pandemic, surging government spending, and other factors have driven prices up, even as the economy itself remains strong by other measures — for now.

1. The Consumer Price Index grew at an 8.5% annual rate in March, the worst rate since December 1981.

Even excluding food and energy, the so-called core CPI increased 6.5%. Wages adjusted for inflation fell 0.8%. Gasoline prices are up 55% since one year ago, rent and mortgage rates are up by about one-third, and the cost of staples like beef, eggs, and milk have climbed at double-digit percentage rates.

Supply chain issues have driven up the cost of new vehicles by 12.5% — which in turn has raised used vehicle prices by 35%. The pandemic slowed delivery of all sorts of goods, but vehicles being shipped from abroad — and the components needed to build them at home — suffered more than most. With new vehicles slow to make it to market, used vehicles for sale became scarce.

 

2. The U.S. gross domestic product grew 6.9% in the final quarter of 2021, but that boom rate is slowing, raising the dangerous specter of stagflation.

GDP recovered from the pandemic recession late last year, but the expansion is slowing, with analysts predicting overall 2022 GDP growth of three percent. While that is still a solid number, Goldman Sachs economists see a 35% chance of recession within the next two years as inflation and heavy federal spending take their toll.

 

3. Unemployment is just 3.6%, which is also boosting inflation.

The very strong job market — with nearly 6.5 million jobs added in the last 12 months — is good for workers, but can be bad for costs. Employers are increasing wages, which in turn leads to an increase in prices. The Wall Street Journal says the Federal Reserve is now trying to do “something it has never accomplished before: reduce inflation a lot without significantly raising unemployment.”

 

4. Trillions in pandemic relief spending, including direct stimulus payments to Americans, raised inflation by as much as three percentage points by the end of 2021.

That’s according to a paper published in March by four economists at the Federal Reserve of San Francisco. They write that inflation rates in the U.S. “and other developed economies have closely tracked each other historically. However, since the first half of 2021, U.S. inflation has increasingly outpaced inflation in other developed countries. Estimates suggest that fiscal support measures designed to counteract the severity of the pandemic’s economic effect may have contributed to this divergence.”

 

5. A recent Gallup Poll found that 83% of Americans worry a “great deal” (59%) or a “fair amount” (24%) about inflation, while 87% worry a “great deal” (58%) or a “fair amount” (29%) about the economy in general.

The same poll found that 17% of Americans say inflation is the nation’s most important problem. Six months ago, just two percent did.

 

No Labels is an organization of Democrats, Republicans, and independents working to bring American leaders together to solve problems.

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