What causes inflation in macroeconomics?

Summary. What causes inflation? There is no one answer, but like so much of macroeconomics it comes down to a mix of output, money, and expectations. Supply shocks can lower an economy’s potential output, driving up prices. An increase in the money supply can stoke demand, driving up prices.

Why is inflation rising?

As workers bargain for better pay, firms begin to increase prices. So, from this research, the authors find that three main components explain the rise in inflation since 2020: volatility of energy prices, backlogs of work orders for goods and service caused by supply chain issues due to COVID-19, and price changes in the auto-related industries.

What's happening with inflation?

Here’s a guide to understanding what’s happening with inflation and how to think about price gains when navigating this complicated moment in the U.S. and world economy. It can be helpful to think of the causes of today’s inflation as falling into three related buckets. Strong demand. Consumers are spending big.