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  • Hey, it's Dan Zimmerman; welcome to Illustrate to Educate.

  • Don't forget to like and subscribe to support simple and objective videos on topics that matter.

  • Have you ever wondered why inflation happens?

  • In this video, we'll look into everything you need to know about what might be causing the inflation we're experiencing right now.

  • First, what is inflation?

  • Inflation is the decline of purchasing power of a given currency over time.

  • In other wordstake the average price of a basket of selected goods and services in the economy, and estimate the rate at which the purchasing power declines.

  • You can also look at it as the rise in the general level of prices, often expressed aspercentage.

  • Let's take a look at a simple example.

  • Say you go to buy a frozen pizza that used to cost $10, but over time, the cost rose to $12 for the same pizza.

  • You can calculate the inflation rate by subtracting the starting price from the later price,

  • and divide it by the starting price, and then multiply the result by 100 to get the inflation rate percentage.

  • In this example, you can see that the inflation rate percentage is 20%.

  • Now that we know what inflation is, generally speaking, many wonder why it's happening and how to prevent it from accelerating at the rate it currently is.

  • There are certainly many events that are causing inflation to rise, such as the war in Ukraine and new and reoccurring lockdowns in places like China due to COVID-19.

  • However, there are many other things that could be contributing to the recent 40-year high in the United States and acceleration of inflation around the globe.

  • As inflation will likely get worse before it gets better, let's take a look at a few theories as to why this is happening and potential ways of how to fix it and slow the rate of inflation.

  • Reason number 1, Pandemic Caused Shortages.

  • It seems there's a general agreement that the effects of the pandemic are to blame for the recent rate of inflation.

  • The economy has not been able to function normally due to disruptions in supply and several industries having to slow down or halt production.

  • When you consider that the supply chain is global, including commodities, global shortages could certainly be attributed to inflation

  • On top of shortages of the goods themselves, some experts say that the vulnerabilities in our infrastructure, such as clogged ports and deficiencies in the trucking industry,

  • have made it difficult to transport goods around the market.

  • Reason number 2 is due to the climbing oil prices which translates to climbing gas pricesultimately causing intense cost pressures that affect a wide range of industries.

  • Even before the pandemic, energy and gas prices were on the rise, but experts say the situation with Russia is making things worse.

  • Russia is the third-largest oil producer after the US and Saudi Arabia,

  • but it is the world's largest exporter of oil to global markets and the second largest crude oil exporter behind Saudi Arabia, especially in Europe.

  • Russia's war on Ukraine and the resulting sanctions are also pushing up prices elsewhere on commodities, such as wheat.

  • Reason number 3, experts argueis due to the three stimulus packages that were pumped into the economy.

  • They believe the issue is that the government put too much money into circulation, which has decreased the power of the dollar and driven prices up.

  • They say nothing on the scale of trillions was needed.

  • It's also debated whether it was the rounds of stimulus checks that gave people more money in their bank accounts to spend,

  • or whether the money handed to corporations accelerating job growth is to blame.

  • Reason number 4 has some people blaming corporations for consolidation and price setting.

  • They say that companies are using their power to set prices at whatever they like because of the lack of competition.

  • They also say that companies are boosting inflation higher by using the problem as an excuse to increase prices so that they can make more profits.

  • A study found that two-thirds of corporate profits are due to the inflation increases, and at the end of the daycorporations do have the power to change prices and create inflation.

  • Lastly, some economists are blaming the cycle of rising wages and rising prices as a self perpetuating cycle.

  • So, now, what's the fix?

  • Well, there doesn't seem to be an easy, straightforward answer.

  • Ondomestic level, the Federal Reserve has started to raise interest rates.

  • The idea is that when the Fed raises rates, it makes it more expensive to borrow money, which means less spending and less demand.

  • However, there's a concern that doing so could push the US economy toward a recession.

  • Keep in mind things like rent prices, which, with rising interest rates, could make building housing more expensive and raise rent pricesmaking the inflation problem worse.

  • Others believe that the government can do more to help with inflation.

  • The White House and President Joe Biden have taken some measures to try to address inflation,

  • such as rolling out a supply chain task force to address issues such as infrastructure at ports and shortages in essential products like semiconductors.

  • As inflation increases, the federal government could look into raising taxes, cutting spending, better antitrust enforcement, taxes on corporate profitsand price controls.

  • But this would require White House and bipartisan cooperation in Congress

  • Ultimately, these fixes for inflation are just going to take some time.

  • Did you find this video about causes and fixes of inflation to be helpful?

  • If so, hit that like button and be sure to subscribe to Illustrate to Educate.

  • If you liked this video, be sure to check out my channel and the videos to the right.

Hey, it's Dan Zimmerman; welcome to Illustrate to Educate.

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Inflation Explained | What is causing inflation? | Why is inflation so high? | How to fix inflation?

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    Misaki posted on 2022/11/22
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