The pandemic has caused many changes in the economic landscape of the United States. Due to labor shortages, supply-chain issues and changing immigration patterns, many prices have begun to rise, including a roughly 20% increase in housing prices in the Johnson City area since August 2020.
Another effect which is less obvious, but nonetheless has a major impact, is monetary inflation brought on by rampant spending from the government. Price inflation and monetary inflation both effect the economy in
major ways, and I’ll dig into monetary inflation a little below.
For those unfamiliar with the terms, price inflation and monetary inflation are two distinct but related forces. Price inflation is the increase of the price of any given good over time. Say the average price of a home in Johnson City increased from $150,000 to $180,000 over the course of a year. That would be a price inflation rate of twenty
percent, which is roughly what we’ve been seeing in the housing market.
On the supply side, Professor Bhattacharjee from the College of Business and Technology says, “Lumber prices actually went up more than one hundred percent during the pandemic because builders did not expect that much demand for new homes during the pandemic.”
The construction industry did not anticipate a surge in home purchasing and did not manufacture enough supplies to meet the demand. The monetary inflation rate, however, is the amount of new money entering the economy, which is more insidious in its impacts than price inflation. According to the St. Louis Federal Reserve, the monetary supply (number of dollars in circulation) has increased by 35% since the start of 2020 (the previous equivalent period increased by 9% for comparison). Because of the way that this new money enters the economy we won’t feel the effects for a while yet, but eventually this will cut the value of the dollar by one fourth.
The reasons for this truly unprecedented increase in monetary inflation can be attributed to both Donald Trump and President Biden, and the congress during both of their presidencies. Relief and ‘stimulus’ packages given out during the pandemic have contributed, as well as corporate bailouts during the pandemic and shutdowns. Omnibus bills catering to special interest groups on both sides of the aisle have only increased in the last two years, also adding to this inflation. Different political and economic schools of thought have different answers to this problem.
As ordinary citizens, we will see the impacts of price inflation due to problems in the recovering economy in housing prices, food prices and even the availability of toys for Christmas. With luck, this price inflation will get better in the next year or two, but the effects of monetary inflation will only begin to be felt a little down the road.
