Inflation explained: How prices took off
The U.S. economy (our red balloon here) is the biggest in the world. It is resilient and strong, but in the past two years, it has faced the biggest challenges in a generation on multiple fronts. It contracted too fast. Then it grew too quickly. This has forced millions of Americans to live through something they have never lived through before: a period of high inflation, which is what happens when prices go up, up, up.
This line of coverage examines some of the most prominent economic themes of the year, explaining to readers their origins and impact during this highly uncertain period. These themes affect all Americans, and understanding what is happening can make you better prepared for what happens next.
What happens next? We aren’t sure. The economy is being pulled in different directions.
Raising interest rates should slow inflation. But these aren’t normal times. There’s a war in Europe. Coronavirus surges are keeping the pandemic going. If the Federal Reserve raises rates too much, it could be bad for the economy. But if the Federal Reserve doesn’t raise them enough, inflation could drive prices to new highs. That’s a lot of pressure on families struggling to pay the bills.
The hope is to get the balance just right to keep the balloon, er, economy, in a safe place.
