Inflation is a rise in the cost of goods and services. Maybe you noticed higher prices at the grocery store or at the gas pump. Maybe your rent has gone up or your paycheck doesn’t seem to go as far as it used to. That’s inflation. In normal economic times, a little bit of inflation is typical. The Federal Reserve, which is in charge of keeping prices stable, wants to see inflation rise 2 percent each year, using their preferred gauge. But the country hasn’t seen this level of inflation in 40 years, and many millennials and people in today’s workforce have grown up without ever thinking about inflation in their lives.

What does inflation mean for me?

Inflation may seem like a wonky academic concept, but it directly affects the things you buy each day. Steep increases in the cost of housing, along with used cars and trucks, have powered the overall rise in prices. Yet few, if any, parts of the economy have been spared. Average U.S. rent prices rose 14 percent last year, to $1,877 a month, with cities like Austin, New York and Miami notching increases of as much as 40 percent, according to real estate firm Redfin. Economists have been especially worried about rising home and rent costs, which can get locked in through long-term contracts and may not improve after supply chains clear up. The price of gasoline fell 0.5 percent in December after months of steep increases. But in December, gas was still 49.6 percent more expensive than it was a year earlier. Food costs rose 6.3 percent in December, compared with the year before, as worker shortages and the spread of the coronavirus bedeviled grocery supply chains.

How did inflation start?

One of the first signs of the coronavirus pandemic in the United States was fallout from the closure of Chinese factories that produced key parts for American businesses and key products for American consumers. Trapped at home by pandemic restrictions, millions of Americans splurged on laptops, furniture and clothing for the work-from-home era. Global shipping prices soared as space grew short on ships. But supply problems did not begin feeding into higher prices until spring 2021, as countries reopened for business in the wake of widespread vaccinations. The normally smooth trans-Pacific conveyor belt of goods stopped and started, resulting in supply disruptions that fed on themselves. The most visible example was the chronic backlog of more than 100 massive container ships anchored off the ports of Los Angeles and Long Beach, waiting to unload their goods. Such supply disruptions have been especially damaging for the auto industry, which ran short of the computer chips needed to make modern vehicles. Over the past year, new car prices are up almost 12 percent, according to the Bureau of Labor Statistics. The sticker shock for buyers of used cars is even worse; they’re up by more than 37 percent.

What else is fueling inflation?

It’s not just the supply chain. There are a lot of things contributing to inflation. For example, a nationwide labor shortage is adding another layer of costs, making it more expensive for companies to transport goods and hire health-care and child-care workers. Millions of workers have retired or have child-care challenges, with ongoing day-care and school closures, or health concerns with vulnerable family members who remain on the sidelines, no longer in the labor force. That has forced companies across many sectors to hike the cost of goods and services to be able to offer higher wages to try to woo workers back to the workforce.

Did stimulus checks help cause inflation?

Over the past three years, the government passed four different stimulus efforts, infusing several trillion dollars into the economy. During the Trump administration, workers got stimulus checks and expanded unemployment benefits of about $600 a week, as well as paid sick leave, temporarily. Later in 2020, the administration also passed a $900 billion relief package that financed a new round of stimulus checks, unemployment aid and small-business assistance, among other measures. But economists are increasingly pointing to the scale and size of the $1.9 trillion American Rescue Plan — which Democrats passed less than two months after Biden came to office — as too big to fill the economy’s hole. This stimulus re-extended more generous unemployment benefits of $400 a week, gave many Americans another round of stimulus checks and expanded the Child Tax Credit, though it has since expired. It also strengthened nutritional assistance and school lunch programs. Many Democrats — except a rare few, such as Lawrence H. Summers, who served under Presidents Bill Clinton and Barack Obama — initially waved off concerns that the spending power of the package could overwhelm the economy and flame inflation. But over time, it became clear that the massive influx in cash that went straight to American households, plus billions more dollars pumped into the broader economy, overheated the recovery. At this point, it’s hard to tease out how much blame stimulus deserves for widespread inflation. But it’s a common criticism among Republicans who didn’t vote for Biden’s stimulus package. And as time goes on, an increasing number of economists concede that the American Rescue Plan was too big to fill the hole left by the coronavirus recession.

Why is housing so expensive?

Housing costs have been pushed up by soaring demand, meager supply — and a different kind of stimulus pumped into the economy. All over the country, as people have reevaluated where they live and work, families have scoured for new homes. But there are nowhere near enough houses or condos to meet the demand, nor is there enough construction capacity to build new ones. The costs of basic building materials, from lumber to window panes, have soared, while construction crews are bogged down by labor shortages. Meanwhile, low interest rates have fueled the boom even more. At the beginning of the pandemic, the Federal Reserve slashed interest rates to near zero and flooded the markets with a deluge of financial support. But that easy money, in turn, drove down mortgage rates while driving up asset prices and lifted wealthier Americans who can compete in America’s unequal housing boom, often through fierce bidding wars and all-cash offers. Nationwide, the hot housing market has trickled down to higher rents or has spurred landlords looking to sell their properties altogether. Increasingly, the pandemic-era housing boom has divided those who can afford to stay and those who cannot.

Is food affected by inflation?

Food prices were one of the first things to start rising. At first, it was because of a spike in demand, with hoarding and massive purchases of items such as flour, yeast, chicken soup and Gatorade , driven by hundreds of millions of Americans being forced to eat most of their meals at home. Foods packaged for restaurants shuttered for months were orphaned even as grocery shelves went bare . But prices kept going up in 2021, with many food manufacturers — including Kraft Heinz, General Mills and Campbell Soup — announcing price increases for 2022, citing the higher costs of ingredients, transportation logjams, labor shortages and higher wages. The good news is that inflation for some food items, such as poultry and meat, is beginning to slow. But now prices for fresh produce , which had avoided the worst of the price hikes, are also rising because of a greater reliance on imports and higher fertilizer costs on farms coinciding with another spike in demand.

How and when will prices ease?

Federal Reserve and White House officials say they still expect prices to ease back down to a more typical level later this year. But it’s unclear how quickly and effectively that will happen while the pandemic maintains its grip on daily life. In the meantime, many economists say families will probably see a lasting mark on their budgets. The cost of rent, for example, is unlikely to go back down after inching higher over the past year. Groceries or building materials that depend on vast supply chains may not become cheaper until those networks clear up. Plus, one big challenge for policymakers is Americans’ perceptions of inflation, which can influence consumer spending choices. If Americans expect the cost of goods and services to keep rising, they may be more likely to buy more furniture or plane tickets now, before the price tag stings even worse. That cycle of behavior only pushes prices higher, which can make those very inflation expectations self-fulfilling.

What other countries are seeing high inflation?

Prices are rising everywhere in the developed world. But at an annual rate of 7 percent, U.S. consumer price inflation is higher than in any other advanced economy. In Europe, inflation hit 5.1 percent in January, the highest level since the euro currency was introduced, more than two decades ago. Residents of Britain are suffering their worst inflation in nearly 30 years, with prices up at an annual 5.4 percent rate. Likewise, you have to go back to the early 1990s to find a period when prices in Canada were ticking up as quickly. As economies around the world reopened last year, they all ran into similar problems. A mismatch between the goods that could be produced and the ones customers wanted to buy. Global shipping and port headaches. Rising costs for key commodities, including oil. In the United States, Biden administration officials wanted to make sure they didn’t repeat the policy errors following the 2009 recession when the government turned to austerity policies before the economic rebound was complete. So they pumped trillions of dollars into the wounded economy. That gave the United States the strongest recovery in the world but at the cost of higher inflation than elsewhere. Even in Japan, where prices have been depressed almost continuously since the collapse of the late 1980s real estate bubble, the central bank in recent days revised upward its assessment of inflation risks for the first time in eight years. Among major economies, only China has a lower inflation rate today than in early 2020. Meanwhile in Turkey, President Recep Tayyip Erdogan’s unorthodox belief that repeatedly cutting interest rates would lower consumer prices has fueled the rapid depreciation of the Turkish lira. Yearly inflation stood at 36.1 percent at the end of 2021, hitting Turkish households hard with few prospects for short-term improvement.

How are countries responding to inflation?

While some of the trends underpinning inflation — such as the pandemic and a global shortage of basic materials — are having the same effect everywhere, some economists say Americans are seeing more rapid inflation than elsewhere as a consequence of the structure of the U.S. economy and the nature of the lavish financial rescue deployed to fight the pandemic. “Part of what we’re seeing in the U.S. is very similar to, and echoed in, the rest of the world,” said Nathan Sheets, global chief economist for Citigroup. “And part of it is unique to our circumstances and particularly to the strength of U.S. aggregate demand.” In 2020 and 2021, direct government checks drove a consumer spending boom while household balance sheets were also lifted by the U.S. stock market, which outperformed those in Europe and Asia. Government responses have also varied across countries, although many central banks have already made moves to raise interest rates. Britain has emerged as an interesting case study for policymakers. As it prepares for inflation to reach or surpass 6 percent in April — just as a cap on energy prices is due for an update to account for the rising cost of supplying energy — Britain is also raising taxes in a bid to reduce its pandemic-related debt. The Bank of England in December also became the first central bank in a Group of Seven nation to raise interest rates . This will put pressure on British households, which are already contending with the higher price of goods, and could endanger the recovery of the British economy.

Is there government aid available for inflation?

There is no direct government aid for inflation. The Federal Reserve is in charge of keeping prices stable, but its tools are blunt. To rein in inflation, the Fed is likely to raise interest rates from near-zero in March, setting up the first in a series of rate hikes to come this year. In France, anyone making less than €2,000 ($2,286) a month in 2021 was eligible to receive a one-time €100 ($114) inflation indemnity from the government. The tax-free payment was designed as a purchasing power buffer for 38 million lower-income people “in the face of the sharp rise in the cost of energy,” according to the government. Other governments have imposed price caps on basic goods to shelter households from the worst effects of inflation. In January, Hungarian Prime Minister Viktor Orbán said items such as sugar, flour and sunflower oil should be sold at the same price as they were in October, and Serbia is working to extend a similar policy past its February deadline. Andrew Van Dam and Kareem Fahim contributed to this report.

Business

What to know about inflation: Rising prices hit in U.S., around the world

By Rachel Siegel

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Updated February 9, 2022 at 8:17 a.m. EST|Published February 9, 2022 at 7:57 a.m. EST

The Federal Reserve building in Washington on Dec. 19. (Samuel Corum/Bloomberg News)

As the coronavirus pandemic enters its third year, families across the United States and even some other nations are feeling the pinch of price hikes of necessities including food, housing and energy, thanks to record-high inflation.

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This means the cost of living is going up at the fastest pace in decades, affecting the price of things most households need and overshadowing the job and wage gains many Americans experienced last year.

‘That raise meant nothing’: Inflation is wiping out pay increases for most Americans

Here’s a guide to what is inflation — and why it’s tricky for governments and central banks to tackle.