Inflation surge is the rapid rise in inflation that can be triggered by a wide range of factors. A number of them were at play in 2021 and 2022. In particular, the COVID-19 pandemic created disruptions in the global supply chain, reducing the availability of important goods and thus driving up prices. At the same time, government stimulus packages temporarily increased consumer spending.
Inflation can also result from a strong demand for a particular good or service, leading to a shortage and driving up prices. This type of inflation is called demand-pull inflation. It usually results from a strong economic expansion, which can lead to high employment and rising wages, which in turn leads to higher spending.
The most commonly used gauge of inflation is the Consumer Price Index (CPI), which includes a broad selection of goods and services that consumers are likely to buy. It measures the average change in the cost of this basket over a period of time, which is then compared to the previous period’s CPI.
Inflation hurts savers, eroding the purchasing power of their savings; it also hurts people who borrow, because they pay back loans with less valuable dollars. But for most, the biggest problem is that inflation reduces their real incomes by lowering the amount they can purchase with a given unit of money. This is especially painful for those at the lower end of the income spectrum, who live paycheck to paycheck and cannot adjust their spending to match rising prices.
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