1. Oil and gas extraction
One of the dominant economic stories of recent months has been a historic run of inflation in the U.S. economy. Nearly every segment of the economy is experiencing rapid price increases at rates not seen in decades. Rising prices are putting greater pressure on households’ and businesses’ financial states as they pay more for goods and services.
The COVID-19 pandemic set off a number of factors that have contributed to the current inflationary environment. Ongoing issues in the supply chain related to the virus have made it more difficult to manufacture, store, and ship goods. At the same time, demand in the economy has been high, particularly for the types of durable goods most affected by supply chain issues. A tight labor market has pushed businesses to raise wages for workers in many industries. The federal government pursued aggressive stimulus to support the economy during the pandemic, including several massive relief packages from Congress and low interest rates from the Federal Reserve. Together, these factors have created imbalances between supply and demand, and with more money in the economy, prices have increased.
One measure the Bureau of Labor Statistics uses to track inflation is the Producer Price Index, which measures average selling prices received by domestic producers of goods and services for their output. The rate of year-over-year price increases in the PPI rose every month from December 2020 to March 2022, reaching a peak of 11.2%. Even after removing foods, energy, and trade services—categories which tend to show greater volatility in prices—year-over-year increases in the PPI still register at 7%.
While inflation is now apparent throughout the economy, not every sector has been affected equally. Services have had the lowest rate of inflation at 8.7%, which in part reflects how services businesses have remained susceptible to disruptions from the spread of COVID among employees and customers. In contrast, energy (36.7%) and transportation and warehousing (21%) have seen year-over-year price increases well above the 11.2% total across all categories. And inflation in these categories may be contributing to inflation in others: businesses that rely on energy and logistics are facing higher costs, which they then pass on to customers.
