Inflation Explained - What Our Politicians Are Failing to Tell You

One of the biggest factors effecting this election is inflation. Let's face it the cost of consumer goods is too high and we don't like it. However, our politicians are failing to tell it to you straight. The following are just 3 factors that have caused prices to go up and the critical role we play in controlling costs.

1. Tariffs - Tariffs are a tax on imported goods. They are designed to protect American industries by increasing the cost of goods imported from overseas (China). The "hope" is that American consumers will reject the foreign import and then buy American. However, we live in a global economy. Most products are hybrid. Meaning, parts are shipped from overseas and then printed or labeled here in the US. As a result, the American company just passes along the increased cost to the consumers. For example, an American company which sells coffee tumblers to consumers that used to cost $5 for $10. Now, due to tariffs, the cost went up to $7.50, the American company just increases the sales price to the consumer to $15.00. President Trump put on the tariffs during his presidency, President Biden left them on. Trump has indicated that if he's elected that he would like to increase tariffs on foreign countries. This will result in a higher cost to consumers since American companies will just increase the prices to cover the cost on imported goods. In addition, foreign countries retaliate and impose the same tariffs on our exports. This costs our farmers money and results in higher costs at the grocery store.

   
   

2. Increase Wages - So now the cost of getting the goods and services to the consumer has increased, therefore we should see a moderate degree of inflation. Unfortunately, politicians on the left will argue that the cost of living has increased so now we need to increase minimum wage to $15 an hour. They will correctly point out that minimum wage workers can't afford to live in the majority of our cities based upon the cost of living. Our politicians on the right will argue that Biden paid labor to stay home (even though this practice started under Trump), and the labor shortages are killing their businesses. The Right is also correct, when they say forcing businesses to pay labor $15 an hour or more will result in higher prices being passed onto the consumer. The whole idea of tariffs is to protect American workers by increasing the cost of foreign goods. However, if you increase wages at the same time, there is no incentive for businesses to stop importing goods from overseas.

   
   

3. Supply and Demand - Simply put inflation occurs each time business owners are forced to pay more for the goods and services required to deliver the consumer an end product. Notice I put in bold and underlined "each time". The reason, inflation can be a vicious cycle and our politicians decisions can create a death spiral of consequences. When the pandemic came to an end, there was one consequence that we should have all seen coming. Gas prices were going to rise. We went from a large portion of our Country staying home and watching Netflix, to a population with new found freedom and cash in their pockets. Simply put many of us were ready to get back to work and travel. We went from empty roads to traffic jams. Economics 101, increase demand without increasing your supply will result in higher gas prices. Higher gas prices, then increased the cost of transporting goods to consumers.

What's the answer? I know it's not popular for a politician to say "I'm going to do nothing". However, that's the answer. No new tariffs, and don't force companies to raise wages. Allow the markets to adjust. When consumers are tired of paying $10 for a bacon egg and cheese and a coffee, fast food restaurants will adjust and start offering "meal deals" for just $6. However, if you force that same business to pay more for it's cups and wrappers, then it will keep it's prices where they are or increase them. It's that simple.