I have had a couple of people ask me about inflation and it being still elevated. We discussed how it's currently higher than it's been in the last 15-20 years but has come down since last summer, although it's not yet at the level the Federal Reserve aims for. They wanted a reminder of why this inflation surge happened in the first place.
First, we had the COVID-19 pandemic in 2020, which led to an economic shutdown. To stimulate the economy when it reopened, the government injected a significant amount of money, akin to what they did in 2008-2009 but on a larger scale. This initial injection was necessary due to the dire economic conditions, though it's debatable whether they may have overdone it.
Second, COVID caused supply chains to freeze up, resulting in shortages of various goods, including cars and their components. When supply chains are disrupted, prices tend to rise due to fewer products available in the market alongside increased money supply.
Finally, Russia's invasion of Ukraine had global implications, affecting food and grain production, which is spread worldwide. Restrictions on this production led to fewer goods in the market, and when coupled with increased money supply, it contributed to rising prices.
While some of these issues have been addressed, inflation remains somewhat elevated, prompting the Federal Reserve to continue focusing on it alongside its mandate of low unemployment. Are we out of the woods yet? No, but things are better than they were Summer of 2022 as far as inflation goes. Have a good September.