Americans have been dealing with rapid inflation for two years, but what’s driving the price increases has evolved.
The data shows that the painful inflation that arose from pandemic disruptions two years ago, and the government’s response to them, was only exacerbated by the war in Ukraine. That combination led to the biggest jump in price increases in half a century. Inflation is now cooling as supply problems clear up and the economy slows, but the road back to normal is still a long and uncertain one.
U.S. inflation today is drastically different from the price increases that first appeared in 2021, driven by stubborn price increases for services like airfare and child care instead of by the cost of goods.
Services costs, which include nonphysical purchases like tutoring and tax preparation, began to climb quickly by late 2021. Because families had more money than usual after months at home and repeated stimulus checks, households were in good spending shape, and landlords, child care providers and restaurants could charge more without losing customers.
The pop in prices over the 24 months that ended in March eroded wage gains, burdened consumers and spurred a Federal Reserve response that has the potential to cause a recession.
