5 Big Questions About Rising Prices

Not at all. An increase in the price of goods (like food and clothing) and services (like doctor visits and haircuts) over time is called inflation. It is a normal process.  

Prices of goods tend to go up slowly over time. But during the past year, prices have climbed much more than usual. Last spring, inflation in the U.S. reached a 40-year high. That means groceries, gas, cars, and many other goods are a lot more expensive than they were even a year ago. 

The price of any product is closely linked to supply and demand. That is a key concept in economics. Supply is the amount of a product that is available to consumers. Demand is how much consumers want of a product.

The Covid-19 pandemic has had a big effect on supply and demand. Early on, a lot of factories slowed or stopped production. That meant a lower supply of many products.

At the same time, many Americans stayed home and spent less. But then consumers started using their savings to buy more stuff. Companies are having a hard time making and shipping enough of many products. The supply of items like new cars is low, and demand for these items is high. And you guessed it—prices have gone up.

Also, this year, many Americans decided to finally take vacations again. That has led to more demand—and higher prices—for things like airline tickets and hotel rooms.

The cost of gasoline has gone up at the highest rate. In June, the price of a gallon of gas reached an all-time high. 

A war in Europe has a lot to do with that. Gasoline is made from oil. Russia is one of the world’s biggest producers of oil. In February, Russia invaded Ukraine, a neighboring country. To punish Russia, the U.S. and many other countries stopped buying much of its oil. As supply has dropped, oil has become much more expensive.

The jump in gasoline prices isn’t just hurting drivers. When fuel prices increase, the cost of shipping goods by trucks also goes up. Grocery stores and other businesses often raise their prices to make up the difference.

Well, it means that our money doesn’t buy as much as it used to. As of April, the average U.S. household had to spend about $340 more each month to pay for the same goods and services that they bought a year earlier.

Economists say demand for oil may drop after the summer, when people travel less. Eventually, supply and demand for many other products will be more balanced and inflation will slow. 

For now, experts say the best thing Americans can do is spend money wisely and hold off on buying big items that are not essential.

1. Why does the author discuss the Covid-19 pandemic?

2. Based on the article, why can the price of gasoline affect the prices of food in a grocery store?

3. Look at the cartoon. What message do you think the cartoonist is sending?