Inflation explained: It seems everything is more expensive than 5 years ago. Here's why.

As she walked the aisles of Walmart in Frazer, Ashley Williams of Pittsburgh’s Morningside neighborhood wanted to know the “mathematics behind” the rising cost of milk, eggs and other staples.

Terry Riehle of Greensburg struggled to understand why Land O’Lakes cheese costs more per pound than most cuts of meat at Shop ’n Save in Greensburg.

Jennifer Vislosky of Verona wondered aloud how prices will shift in the coming months as she grabbed a bag of ground coffee at Giant Eagle along Allegheny River Boulevard.

“Is it going to go down? Is it going to keep rising?” Vislosky said. “What’s normal now?”

Western Pennsylvanians have lots of questions about inflation, but they know how it’s affecting their household, especially when it comes to their grocery bills.

Inflation and the economy at large are game-changing topics in this year’s presidential election between Democrat Kamala Harris and Republican Donald Trump, but the price of consumer goods depends on a lot more than who’s in the White House.

Economists say disruptions caused by covid-19, the war in Ukraine and other crises have made almost every facet of life more expensive.

Grocery prices are about 20% higher than they were five years ago. Rent has jumped by 22% over that period. Fuel is up 25%. More than 75 years of economic data collected by the U.S. Bureau of Labor Statistics shows that prices almost never come back down, and, if they do, it’s short lived.

In the coming weeks, TribLive will examine 10 core categories of goods and services to uncover industry-specific sources of inflation, the impact of high prices and whether consumers can expect relief.

What is inflation?

Simply put, inflation is when more prices are rising than falling.

This happens when there’s a mismatch of supply and demand, said Gus Faucher, chief economist at PNC Financial Services Group.

“When demand is strong in the economy, prices are going to go up,” he said. “Supply in the economy can increase, and it increases over time by workers being able to produce more things. But if demand is increasing more quickly than supply, prices go up.”

Consumer goods tend to come to mind first when discussing inflation, but expenses such as health care, housing and travel make up a larger portion of average household spending, Faucher said.

A decrease in quantity without a corresponding price reduction — or “shrinkflation” — also counts as inflation, Faucher said. Think of a bag of potato chips with fewer chips, but at the same price as before.

“Greedflation” refers to the idea that corporations unjustly use inflation as an excuse to widen profit margins. Experts say this has played only a minor role in soaring prices.

What caused recent inflation?

A mix of supply and demand factors during the covid pandemic created the inflationary spiral that started in early 2021, peaked about a year and a half later and has almost fully dissipated since, economists say.

The National Bureau of Economic Research has found that supply chain snags were most prevalent in 2021, before issues such as a lack of workers and equipment took over as the main driver of inflation.

According to Michael Pearce, deputy chief U.S. economist for international advisory firm Oxford Economics, semiconductors were particularly in short supply. Also known as microchips, these devices are an essential component of electronic devices, from cellphones to cars.

Restaurants and grocery stores also have faced tough times, in no small part because of the ongoing Russian invasion of Ukraine, said Stan Ernst, a professor of agribusiness at Penn State University. Sanctions by the U.S. and European Union have slashed fertilizer exports from Russia and Belarus, hobbling global food production.

Labor shortages also have made some foods harder to come by.

“We have a horrendous problem getting people to work at the farm level, at the processing level and at the retail level,” Ernst said.

Avian flu outbreaks have further sapped egg and poultry supplies. The government requires entire flocks to be culled when the virus is detected on a farm.

Consumer demand was strengthened by economic assistance provided by the federal government, such as the three rounds of stimulus checks issued in 2020 and ’21, Faucher said. Low interest rates also allowed consumers to load up their credit cards.

That meant producers “weren’t always able to keep up,” he said, and that led to rising prices.

How is inflation measured?

The Consumer Price Index is the most frequently cited of several inflation indexes published by the government.

It’s based on the spending of urban consumers — defined by the Bureau of Labor Statistics as a vast majority of the country. The agency asks thousands of consumers to report what they buy and for how much, and then uses that information to calculate the CPI.

CPI readings most often are expressed as a percentage change compared with the same time last year. The July reading, for example, shows a 2.9% increase in prices compared with July 2023.

Pearce said the Consumer Price Index’s popularity stems from being published earlier in the month than other indexes, though it’s not necessarily the most complete. For instance, the Personal Consumption Expenditures Price Index pulls in prices from all geographic areas and includes some nonprofit institutions as consumers.

The covid-era spike in the CPI peaked in June 2022 at 9.1% — the highest reading since the stagflation crisis of the late 1970s and early ’80s, when prices climbed despite sluggish economic growth.

Pearce emphasized the CPI is more useful for capturing trends nationally than impacts on individuals. Workers with long commutes, for example, are more sensitive to gas prices than those who use public transit.

“One person’s experience is going to be different than 330 million people’s experiences,” Pearce said.

Is inflation all that bad?

The Federal Reserve considers a small, stable amount of inflation healthy because it contributes to stable prices and high employment.

Known as “the Fed,” the U.S. central bank manages the nation’s monetary policy, in large part by setting the interest rate that banks charge each other to borrow money overnight. A higher interest rate restricts the money supply and, in theory, drives down prices.

Fed Chair Jerome Powell said this month the bank is prepared to cut its key interest rate as spending cools.

Zero or near-zero percent interest rates were in place following the Great Recession in the late 2000s. They ticked up in the late 2010s, plummeted again at the onset of covid and finally climbed to over 5% to fight inflation.

The Fed’s goal is to keep an annual inflation rate of 2%.

“The classic pushback would be, if you want stable prices, why not target inflation of 0%?” Pearce said. “And the reason is, you’d get closer to a situation where you’d get deflation, which would be difficult because the Fed can’t set interest rates below 0%.”

Pearce said deflation hurts debtors the most. When prices drop, so do wages, but debts stay the same.

Everyone feels the squeeze when prices go up quickly, said Laurence Ales, a professor of economics at Carnegie Mellon University.

“If you have a lot of your income going to goods and services, then you’re impacted in a way we all understand. Your purchasing power has gone down,” Ales said. “If you have lots of accumulated wealth, then the value of that accumulated wealth is eroded by prices going up.”

Will prices come down?

Since May 2023, the Consumer Price Index has remained under 4%.

Each economist interviewed by TribLive said they expect prices to climb but more slowly for the foreseeable future. Ales noted that if the Fed wants 2% inflation, “the expectation should be that prices will keep growing at around 2%.”

Prices sometimes drop in certain industries. At the onset of the pandemic, for instance, the cost of flights and fuel plummeted as people scrapped travel plans and stayed home.

Every once in a while, things get cheaper across the board. But consumers should prepare for prices to continually tick upward — and be careful what they wish for.

“Sometimes (prices fall), but that tends to be when the economy is doing very badly,” Pearce said. “One way to get deflation in the economy and get prices down is to have a really big economic disaster.”