Written by Sophia Watha
Prices for everyday goods and services seem to be skyrocketing, with each new day incurring a new price increase. This surge in prices can be seen everywhere from grocery stores and restaurants to clothing suppliers and gas stations (World Economic Forum, 2023), and it is leaving millions of people in the United States needing to cut down on spending.
For many, necessities are becoming unaffordable and budgeting is vital as the real wages of employees are falling below their cost of living. Real average earnings are 1.8% lower than last year (Cox, 2023), showing how the incomes received are not enough to keep up with inflation. The raises that many workers receive are meant to help people to purchase the same amount of the same goods and services they already purchase (their CPI) as inflation increases. But these raises, or current average salaries in general, are not enough for the ongoing price increases (Cox, 2023).
In the year 2020, the average national price for a dozen eggs was $1.51. When looking at expected inflation, which is the future prediction of price increases, the surge in prices should not have been as significant as it was. Egg prices should have increased from $1.51 in the year 2020 to $1.75 in 2023 (“Egg Prices Adjusted…,” 2023). But, eggs currently are being sold at about $5 for a dozen, making each egg $0.50 apiece. These egg prices are significantly higher than what they typically should be and more than double the price a few years ago. The increase in egg prices is in part due to natural causes, which will be further addressed in subsequent paragraphs. It is not just grocery items that have gone up though. The price of school lunches has increased by about 254% and gas by 66% (World Economic Forum, 2023) for example, demonstrating how actual inflation, which are price increases that actually occur, is a lot higher than expected inflation. All prices are going up regardless of what the good or service may be (World Economic Forum, 2023). The price increases have created a domino effect, forcing other businesses such as restaurants, hotels, and rental car establishments to increase their prices as well. These companies have raised their prices in order to compensate for the higher amount of money they are forced to pay for their inputs of production.
So, why is the economy experiencing abnormally high prices? One significant contributor is the aftermath of Covid-19. Once lockdowns were lifted, people went out and started to spend more than they were previously to make up for the lost time. Demand began to exceed supply and suppliers, whose businesses had already slowed down due to the pandemic, had trouble keeping up with this higher demand (“Why is Inflation So High…,” 2023). Thus, to try to bring demand down, suppliers increased prices in hope that demand would decrease and they would be able to catch up.
Another reason for the high inflation is the war in Ukraine. Generally, domestic and foreign conflicts affect economies worldwide in terms of trading. Russia and Ukraine both supply countries around the world with a multitude of goods and services. For example, both countries supply the world with 80% of their sunflower oil and 25% of the world’s wheat (“Why is Inflation So High…,” 2023). Corn and bread are predicted to be in shortage in 2023 as Ukraine is a major producer of both (“These Foods Will Be In Short Supply…,” 2023). Russia is also a major contributor to the supply of oil and energy, and as the US banned Russian imports, the number of suppliers for oil and energy decreased (“Why is Inflation So High…,” 2023). While this is occurring, the demand for oil is increasing after a majority of the population was in lockdown due to the pandemic (Horner, 2022).
In addition, natural causes are decreasing the supply of certain food items, which in turn is also increasing prices and contributing to inflation. A dozen eggs currently cost more than a gallon of gas in a majority of states because of an Avian Flu virus that affected 58 million chickens. This caused the supply of eggs to decrease, and as demand for eggs did not decrease with the supply, prices went up (Tellez, 2023). There has also been an increase in droughts, with the drought-affected areas around the world expanding everywhere. These droughts destroy infrastructure and kill crops, adding to why prices for certain foods may be higher (NCEI, 2023). For example, droughts in Texas are destroying a majority of crops and are affecting the US beef supply since the cows are grass-fed. This is especially concerning given that 14% of the US beef supply can be traced back to Texas (Boone, 2023). Instances like this are part of the reason why the USDA is expecting there to be a beef shortage in 2023. The beef supply problem also affects the milk supply, which then affects the production of butter, creating a low supply of both goods. Due to drought in California, there is also expected to be a shortage of lettuce and tomatoes, and oranges are expected to be low in supply due to hurricanes Florida experienced in 2022 (Boone 2023). There are dozens of other everyday goods that will be incurring a shortage in 2023 along with these goods due to similar reasons, which will continue to increase prices.
These factors of natural causes, the war in Ukraine, and the Covid-19 pandemic are all major contributors that have been occurring for a while now. So, why is the economy still feeling the effects of them? One reason is simply because these are still ongoing occurrences. But another reason is that producers are able to increase their prices simply because they can. Companies are able to keep prices high as most consumers are not responsive to price increases. A majority of the population has been preparing for higher prices and inflation as it is currently what everyone is expecting (Picchi, 2023). From 2006 to 2019, consumers became 30% less price-sensitive (Semuels, 2023). As companies continue to raise prices on goods and services, consumers do not change their purchasing behavior- they continue to purchase the same exact products (Semuels, 2023). So, although there are also lots of exogenous factors that play into inflation, businesses have the ability to keep prices high, even when not necessarily needed on the supply end, as it is what consumers already expect.
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