U.S. inflation rates are historically high and rising heading into 2022.

You can’t help but notice higher prices every time you go to the grocery store. If you’ve had to recently purchase a new or used car, you paid more than you likely would have paid just a year or even months ago. The rising prices are the result of inflation.

According to marketwatch.com, a subsidiary of Dow Jones & Co., U.S. inflation climbed to 7.5% in January, the highest rate the country has experienced since February 1982.

Some markets experiencing an uptick in inflation compared to December of 2021 are shelter (4.1% to 4.4%), food (6.3% to 7%), new vehicles (11.8% to 12.2%), used cars and trucks (40.5% to 37.3%) and medical care services (2.7% to 2.5%).

While these individual markets contribute to the national inflation rate, a deeper dive is needed in order to find the underlying reasons for the highest inflation rates witnessed in the last 40 years.

UWO Associate Professor of Economics David Fuller said that inflation is caused by a culmination of factors. He said the main causes are the growing money supply of the public as well as the supply and demand forces at work. For example, scarcity in the stock of certain items will cause prices to spike.

“Inflation is generally the result of increases in the supply of money. This is controlled by the Federal Reserve Bank; the Fed has maintained very low interest rates, which is accomplished by increasing the supply of money,” Fuller said. “Large supply chain disruptions have reduced supply of many goods, leading to an increase in price.”

Supply chain disruption comes in a variety of forms, but one disruption is unemployment. According to the Bureau of Labor Statistics, unemployment skyrocketed to as high as 14.7% in April of 2020.

Unemployment has since tapered off, partially due to businesses converting to remote work, but areas such as supply chain management are still short-staffed.

Fuller said less staff working in these supply chain sectors has a hand in inflation, but the multiple stimulus checks being given out have increased the money supply as well. Both factors have further driven up the U.S. inflation rate.

“COVID-19 has been the source of most of the supply chain disruptions, which has likely contributed to the general rise in prices,” he said. “In addition, the federal government has run large budget deficits to provide stimulus to the economy. If these deficits are paid for in part by additional money creation by the Fed, this can be inflationary.”

This predicament becomes an issue for businesses that may not be able to raise employees’ wages while offsetting the difference with higher prices to adjust for inflation. However, an increase in money supply demands this adjustment.

In this market, Fuller says smaller businesses are more likely to feel the brunt of the inflation’s repercussions if they cannot bring in a desired amount of revenue with the adjusted prices.

“Those businesses with the least ability to raise prices are most affected. Not all businesses have the ability to pass on an 8% price increase to consumers on a regular basis,” Fuller said. “This is likely to affect smaller businesses whose customers are more sensitive to price changes.”

This puts mom and pop shops in Oshkosh at the most risk if they cannot retain customer loyalty during these times.

Service industries, or ones that do not lean as much on manufactured goods as much as they provide a certain skill, may also suffer from customer loss if they cannot effectively explain the cause of their raised prices.

Fuller said it’s on the Federal Reserve to mitigate this by raising interest costs in order to offset the increasing money supply.

However this can negatively affect people who want to begin a payment plan for an expensive item, such as a house or car. Over the course of months or years, their interest will accumulate at a higher rate than usual.

“They accomplish this by reducing the growth rate of the money supply,” he said. “You can expect the Fed to raise interest rates over the next few years to reduce [inflation].”