The sneaky culprit behind the skyrocketing prices - inflation!

As I head to the grocery store, I mentally prepare myself for the possible high prices. Today, I needed to purchase diapers, and I noticed the effects of inflation on this particular product. It's noteworthy that this current period of inflation is not limited to one country, as it's a worldwide phenomenon.

Inflation is rising, and we're all wondering what's causing it. Is it just COVID, or is there more to the story? Everything is getting more expensive, from diapers in the US to food in Ghana and home prices in India. But why? And can we do anything about it? Tune into cable news in the US, and you'll hear the same old explanation: "Still too much money, chasing too few goods." But what does that even mean?

For example, the Pandemic's got me feeling low on cars. Factories are shutting down left and right, and my inventory is taking a hit. But here's the kicker: my customers are still hungry for some sweet rides. The demand is high, but the supply is low. So what's a savvy car dealer to do? Simple - jack up the prices! This is a fundamental concept in economics. Too much dough chasing too few cars.

Larry Summers is the economist on everyone's lips, warning us about the looming inflation crisis since day one.

"I am much more worried that we'll have inflation."

"This is the...least responsible macroeconomic policies we've had in the last 40 years."

Larry Summers has sparked a heated debate about pandemic relief checks, but before we dive into the nitty-gritty of his argument, let's take a closer look at how the elusive beast that is inflation is measured.

Every month, the US Bureau of Labor Statistics creates a "market basket" to track the prices of goods and services. Similar data can be found globally. They examine prices for things like housing, electricity, and prescription drugs. Then they compare this month's prices to last month's or last year's to calculate a single percentage - the Consumer Price Index (or CPI). And guess what? CPI has been steadily climbing for the past couple of years. (Coincidences?) But let's dive deeper into the goods and services that make up this index.

Certain items, such as fuel oil, airline fares, gas, baked goods, and dairy products, have experienced a significant price increase compared to last year. However, other items have remained relatively stable.

The Federal Reserve predicts a 2% inflation rate in a healthy economy. Prices for clothing, prescription drugs, and education are slightly above this mark. However, prices for used cars and trucks, gasoline, and communication (such as phone plans and internet streaming) are lower than last year. There may be more to this than just people having extra money.

The Bureau of Labor Statistics doesn't track the price of diapers as part of the CPI. However, a private research firm called Nielsen IQ does. They use the unit price, which is the box of diapers divided by how many diapers are in the box, to determine an average price. In 2019, the average unit price for diapers was 16.1 cents. If prices had increased at the expected 2% inflation rate, I would have paid 17.4 cents per diaper in January 2023. But the last few years have yet to follow that pattern. If the price had increased at the same rate as the CPI, I would pay 19 cents per diaper in January 2023. Unfortunately, I am paying 21 cents per diaper, which is a more than 30% increase.

Diapers are getting more expensive, but why? Let's break it down. Businesses have costs, like worker wages and machinery investments, that add up to the cost of production. But then there's the price the good is sold for, called a markup. So, what's causing the diaper markup to skyrocket?

Reporting inflation is challenging, as it's hard to determine how much companies are shelling out for labor and materials. But let's take a guess. On the labor front, we've seen a 17% increase in average hourly wages for manufacturing workers from 2019 to 2023. That's faster than your typical 2% annual inflation rate! But consider this: corporations have kept wages depressingly low for years, to the point where they decreased relative to inflation. So, this recent wage bump might be a return to normalcy. But what about the cost of materials?

Diapers are made of wood and plastic, which have become more expensive over the last five years. But that's not the only reason why diaper prices have gone up. Big corporations are taking advantage of consumers by jacking up prices beyond what they need to. Hostess Brands' CEO admits they're doing it because "consumers get used to it." Tyson Foods says that increased prices for beef "more than offset the higher costs." And VISA's CEO thinks that inflation is excellent for them. These companies have made record profits, but instead of sharing the wealth, they're sticking it to us.

At present, there are three theories concerning inflation.

1. There is an excess amount of money in circulation
2. The occurrence of supply shocks, and
3. Significant increases in prices

It may take an extended period of time to gather sufficient data to determine which of the three explanations is most valid. However, some actions can be taken to reduce prices, and our perception of inflation could be clearer, which limits the range of tools at our disposal to address this issue.

The Federal Reserve increased interest rates to make borrowing more expensive for companies. This can make it difficult for companies to invest in new projects and hire new employees. The Fed has raised interest rates eight times, and unemployment has remained low. However, if interest rates continue to rise, this could change. In the early '80s, the Fed raised interest rates to combat high inflation, but unemployment skyrocketed. In December 2022, prices for dairy, fruits, veggies, and airline fares decreased. Still, gasoline and fuel oil prices remained low, likely unaffected by interest rates.

In the past year, President Biden authorized the release of millions of barrels of oil from the US emergency stockpile, resulting in increased global supply and lower prices. Similar actions have been taken in other sectors of the economy.

In 1939, President Franklin Roosevelt requested almost $900 million from Congress to assist the airline industry in increasing their production by four times. He stated, "Ships, planes, tanks, guns." He declared it their goal and promise.

Rakeen mentioned a way to bring prices down that made me think. Two companies make 70-80% of all US diapers. Procter & Gamble produces Luvs, Pampers, and Ninjamas. Kimberly-Clark produces Huggies, Pull-Ups, and Goodnites. This surprised me when I reviewed footage from a grocery store. Despite the appearance of many options, parents have limited choices in the diaper aisle.

Policymakers have implemented extensive deregulation, enabling corporations to gain significant power and increase prices without repercussions. The supply and corporate power dials have been neglected, and it is unnecessary to sacrifice workers to achieve lower prices.