Increasing energy prices cause inflation.
Polychroniou 22 — C.J. Polychroniou, political scientist and political economist, member of Truthout’s Public Intellectual Project, 2022 (“Nationalizing Fossil Fuel Industry Is a Practical Solution to Rising Inflation,” Truthout, Available Online at https://truthout.org/articles/nationalizing-fossil-fuel-industry-is-a-practical-solution-to-rising-inflation/, Accessed 07-07-2023)
The biggest single factor driving up overall inflation rate is energy prices. Energy prices rose by 27 percent over the past year, and within the overall energy category, gasoline rose by 40 percent and heating oil by 46 percent. This spike in gasoline and heating oil prices, in turn, has fed into the total operating costs faced by nearly all businesses, since these businesses need gasoline and heating oil to function. Businesses therefore try to cover their increased gasoline and heating oil costs by raising their prices.
The second big factor is automobile prices, used cars in particular. The average price of used cars rose by 41 percent over the past year. High auto prices do also feed into the costs of other businesses, though not to as large an extent as energy costs.
The third big factor has been wage increases. Average wages rose by 4.0 percent over the past year. Here again, businesses will try to cover these increased wage costs through passing the costs onto consumers through higher prices. That said, we need to be clear on some details about the wage increases. First of all, for the average workers, their 4.0 percent wage increase is 3.5 percent below the 7.5 percent increase in prices for the average consumer basket. This tells us that, due to the 7.5 percent inflation rate, the workers’ 4.0 percent wage increase ends up amounting to a 3.5 percent pay cut after we take account of what the workers can buy with their wages.
Second, not all workers have gotten this average 4.0 percent wage increase. Some have gotten more and others got less. In fact, some of the largest wage increases went to workers employed in hotels and restaurants (8.4 percent raises) and in nursing home facilities (6 percent raises). These workers were hard-hit by the COVID pandemic and recession, through the dangerous conditions in nursing homes and the full-scale lockdowns of restaurants and hotels. Finance industry employees also got big raises, at 8.1 percent, though in this case, hardly to compensate for hardships over the previous year. These raises rather reflect the dizzying rise of the U.S. stock market during COVID and after, all fueled by the Federal Reserve’s $4 trillion bailout of Wall Street over the crisis.