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People shopping in the egg and dairy case on March 13, 2020 at Whole Foods Merket in Vauxhall, New Jersey. (Photo: Rich Graessle/Icon Sportswire via Getty Images)

Inflation Is Complicated, But the Solution Is Simple

The best thing we can do to offset the pain of inflation is to raise the standard of living for all of us.

Domenica Ghanem

 by Inequality.org

Many Americans are noticing the rising price of goods from sour cream to carburetors as politicians sound the alarm on an inflation crisis.

You may be wondering what single force would cause the cost of a dairy product to go up at the same time as the cost of a car part. The truth is that not all inflation is the same. Each sector has its own issues.

A few conservative lawmakers have used inflation as an excuse not to pass these programs. But they have it exactly backwards.

And none of it is solved by less government funding for our safety net, as some politicians have proposed.

Some of it is what we can call pandemic inflation. Because our economy bounced back quicker after the COVID-19 shutdowns than anyone predicted—thanks largely to investments from the American Rescue Plan—people have more spending money and demand has risen faster than our underinvested supply chain could handle.

This rising demand accounts for price flares in auto manufacturing and lumber, for example. At the same time, you'll notice prices that had plummeted during the shutdowns returning to pre-pandemic levels. Think: plane tickets.

Meanwhile, recent price spikes on other goods that families depend on—like diapers, meat, and dairy—can be linked to corporate greed. Decades of corporations monopolizing industries and cutting out competition has given them the power to artificially inflate the prices of these necessities under the guise of "inflation."

Big business is simply milking this opportunity to claim that they need to raise their prices while they use those profits to engage in stock buybacks—which benefit shareholders and CEOs, not small farmers or the grocers who stock the shelves.

This is hard on consumers as well as small and family-owned businesses who depend on bigger conglomerates like Amazon for supplies and market access. With bigger chains hiking up prices, many smaller businesses are going under.

But the price pressures that hurt families the most are not caused by the pandemic—and in fact have been rising for decades.

By far the biggest ticket items on struggling families' budgets are rent and child care. The housing crisis is so bad that no person earning minimum wage full-time can afford rent in any U.S. state. And the cost of child care costs more than college tuition in 30 states.

The Build Back Better Act being debated in Congress right now would help address our housing supply crisis by building new affordable units with a $150 billion investment. The law would also reduce out of pocket child care costs for families, increase labor participation, and raise the wages of care workers.

More local policies like rent control, which advocates won recently in St. Paul, Minnesota, could also help regulate prices.

A few conservative lawmakers have used inflation as an excuse not to pass these programs. But they have it exactly backwards.

The best thing we can do to offset the pain of inflation—whatever its cause—and for the overall health of our economy, is to raise the standard of living for all of us. That means lowering the poverty rate, raising wages, and reaching full employment.

For too long we've supported an economy that depends on low-paid jobs, dangerous work, and big businesses monopolizing power. That makes all of us suffer. Slowing down our economy to boost profits for corporations won't eliminate the need for families to purchase the products they depend on or fix our supply chain issues.

We need to build a system that supports a healthy economy for everyone, and the Build Back Better Act would be a down payment on a future clean bill of health.


This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License.
Domenica Ghanem

Domenica Ghanem

Domenica Ghanem is a communications assistant at the Institute for Policy Studies.

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