by Lara TALİ

 As you may have heard before, on a daily basis, we often encounter the word inflation in the news, on the internet, and in newspapers. So do we know its definition? What does inflation mean? Inflation is the decline of purchasing power of a given currency over time. Alright, but how does it work? In a simple way, if you feel like your currency doesn’t go quite as far as it used to, the reason behind this is inflation. Inflation occurs when prices rise and causes a decrease in the purchasing power of your currency. Also, it is highly incorrect to think inflation in terms of higher prices for only one or two items or services. Usually, it affects the whole industry or sector like automotive or energy business; however, if necessary measures are not taken immediately to prevent the mass destruction of the country’s economy, the end is inevitable. 

​

If we look at the rising inflation in the US, we will see a rise by 7.5% from a year ago, with its highest all over the 40 year time scale. The Consumer Price Index (CPI), calculated by the US Bureau of Labor Statistics, is being measured monthly based on the changes in prices that consumers pay for goods and services. The CPI uses a “basket of goods” approach to track changes in the costs of major categories people spend money on, such as medical care, education, communication, housing, transportation, etc. These measurements are vital because they indicate the effectiveness of the current economic policy. In fact, with Biden’s new legislative packages that are enabling the growth of the economy like the American Rescue Plan (ARP) and the Infrastructure Investment and Jobs Act (IIJA) were passed in 2021, these packages and the other new plans to grow the economy have worked somewhat since the US economy grew 5.5% last year, the most substantial growth rate since 1984, and more than 1.6 million new jobs have been added. No matter how useful these packages are, the inflation rate keeps increasing day by day. With the rise in gas, food, and housing prices, just 37% of Americans approve of how Biden is handling the economy, according to a poll conducted by Associated Press-NORC Center for Public Affairs Research.

​

What do Americans think about the rising inflation rate? Many Americans are too young to remember the uncertainty inflation wreaked on the country in the 1970s, “The Great Inflation,” when the wages snowballed, and the purchasing power remarkably declined before a recession and double-digit unemployment rates in the early 1980s. American consumers are already feeling the pressure, especially those with limited means to absorb higher prices for items. At the same time, the economists say policymakers now have much better-equipped and have more proper conditions to respond to inflation than the last time it struck the US. Frankly, the Covid-19 pandemic also plays a tremendous role in the rising inflation rate. It directly affected the stock market and obviously did not leave positive impressions. People are frightened by all of these hostile conditions that they will face. In order to create a smooth transaction, economists explained some ways to manage the crisis “If you are dealing with inflation, you have to think about protecting your investments.” It is logical because just keeping money in the bank account may hurt since you aren’t getting compensated for the inflation. In short, only time will tell if the American people will get through this economic crisis or it will grow with a snowball effect.