(KRON) — Consumer prices went up seven percent over the past twelve months — the biggest spike in almost 40 years.
With inflation now at seven percent, that means that every dollar that someone earns is now worth $0.07 less.
For instance, if you bring home $1,000, you’re out 70 bucks.
Anyone who’s been to a grocery store lately probably has noticed the prices of things going up and short supply on some items.
If you’ve also tried to buy an appliance, like a washing machine, those prices are up.
If you’ve tried to buy a new or used car, prices are way up — sometimes as much as 30 percent.
The reason this is happening is that the economy is actually doing well, and people are trying to spend money.
However, because of supply chain issues created by the pandemic, truck drivers being out sick, people losing their jobs during the pandemic, and it’s hard to get things from the manufacturer to the store.
So, high demand with low supply equals higher prices and higher inflation.
Now, the Federal Reserve is charged with keeping an eye on inflation
They have said that the inflation was temporary, but it has persisted on Tuesday, signaling they may be willing to do something about it.
Increasing interest rates may be the way to address inflation.
Raising interest rates would slow the economy and bring down inflation, but that also means it would cost more to borrow money for things like buying a house or if a business wants to borrow money to keep operating.
Also, raising interest rates doesn’t address the supply chain issues.
At this point, it’s unclear when or if the Federal Reserve will raise interest rates. Some people believe it could happen in small increments over the course of the next year.