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5 Big Questions About Rising Prices
The cost of everything from groceries to gas has gone up in the past year. Here’s what you need to know.
1. Is it unusual for prices to go up?
Not at all. An increase in the price of goods (like food and clothing) and services (like doctor visits and haircuts) over time is called inflation. It is a normal process.
Prices of goods tend to go up slowly over time. But during the past year, prices have climbed much quicker than usual. Last summer, inflation in the U.S. reached a 40-year high. That means groceries, gas, cars, and many other goods are more expensive than they were a year ago.
2. What causes prices to go up and down?
The price of any product is closely linked to supply and demand. Supply is the amount of a product that is available to consumers. Demand is how much consumers want of a product.
3. Why have prices skyrocketed?
The Covid-19 pandemic has had a big effect on supply and demand. Early on, a lot of factories slowed or stopped production. That meant a lower supply of many products.
At the same time, many people stayed home and spent less. But then consumers started using their savings to buy more stuff. Companies have had a hard time making and shipping enough of many products. The supply of items like new cars is low, and demand for these items is high. And you guessed it—prices have gone up as a result.
4. Which product has inflation affected the most?
Over the first half of the year, the cost of gasoline went up at the highest rate. In June, the price of a gallon of gas reached an all-time high. After the summer, gas prices dipped a bit. But they are still higher than they were a year ago.
A war in Europe has a lot to do with that. Gasoline is made from oil. Russia is one of the world’s biggest oil producers. In February, Russia invaded Ukraine, a neighboring country. To punish Russia, the United States and many other countries stopped buying much of its oil. As supply has dropped, oil has become more expensive.
The jump in gasoline prices isn’t hurting just drivers. When fuel prices increase, the cost of shipping goods by trucks or planes also goes up. Stores and other businesses often raise their prices to make up the difference.
5. What does this mean for consumers?
It means that our money doesn’t buy as much as it used to. As of April, the average U.S. household had to spend about $340 more each month to pay for the same goods and services that they bought a year earlier.
Eventually, supply and demand for many products will be more balanced and inflation will slow. For now, experts say, the best thing Americans can do is spend their money wisely. They suggest holding off on buying big items that are not absolutely necessary.
