Guest Post: Why Everything Feels More Expensive — And What It Reveals About the Economy

Guest Post By FinanciallyLit

In recent years, consumers across the United States and much of the world have noticed a consistent and often frustrating trend: everyday goods and services feel significantly more expensive. From groceries and rent to restaurant meals and utility bills, the cost of living has surged in ways that challenge household budgets and reshape financial priorities. The experience isn’t anecdotal—it’s a reflection of economic forces that have been building since the early 2020s, rooted in global disruptions, domestic policy responses, and structural shifts in how the modern economy functions. Inflation, at its core, refers to the general increase in prices across an economy over time. It erodes purchasing power, meaning that each unit of currency buys fewer goods and services than before. While central banks typically aim for a stable inflation rate of around 2% annually—considered conducive to healthy economic growth—the past few years have far exceeded that target.

In 2022, the U.S. consumer price index (CPI) peaked at over 9% year-over-year growth, the highest rate in four decades. This wasn’t the result of a single factor but rather the convergence of several global and domestic dynamics.

1. Supply Chain Disruptions from the COVID-19 Pandemic

The global economy is deeply interconnected, and the pandemic exposed its

vulnerabilities. Factory closures in Asia, shipping bottlenecks, labor shortages, and port congestion led to delayed deliveries and shortages of key goods—from semiconductors to baby formula. When supply contracts but demand remains steady (or even increases), prices naturally rise.

2. Pent-Up Demand and Stimulus Spending

In the early phases of the pandemic, governments around the world injected trillions of dollars into their economies to prevent a full-scale depression. In the U.S., direct stimulus payments, enhanced unemployment benefits, and low interest rates supported household incomes. As lockdowns lifted, consumers began spending again—often more aggressively—on everything from home renovations to travel. This surge in demand further strained supply chains and pushed prices higher.

3. Energy and Commodity Price Shocks

Russia’s invasion of Ukraine in early 2022 disrupted global energy and food markets. Russia is one of the world’s largest exporters of oil, natural gas, and fertilizer, while Ukraine plays a key role in global wheat and corn supply. The resulting instability caused sharp increases in gasoline, heating, and agricultural prices, feeding directly into consumer costs.

4. Corporate Pricing Power and “Greedflation”

Some economists and commentators have pointed to another contributing factor: corporations with strong market power taking advantage of inflationary conditions to raise prices more than necessary. While difficult to quantify across the board, data from several industries—especially packaged foods, air travel, and logistics—suggest profit margins expanded during periods of high inflation, even as input costs normalized. 

In response to accelerating inflation, central banks pivoted swiftly. The U.S. Federal Reserve, which had maintained ultra-low interest rates throughout the pandemic, began a series of aggressive rate hikes starting in March 2022. By mid-2023, the federal funds rate had risen from near zero to over 5%, one of the fastest tightening cycles in recent history. Higher interest rates serve as a brake on the economy—they make borrowing more expensive, cooling demand for homes, cars, and business investment. While this can help contain inflation, it also raises the risk of reduced economic growth, higher unemployment, and financial instability.

It’s important to distinguish between inflation and price levels. A slowing inflation rate means that prices are increasing at a slower rate, not that they are falling. Once prices rise, they tend to remain elevated unless a period of outright deflation (falling prices) occurs, which central banks generally seek to avoid. For many households, this distinction offers little comfort. A carton of eggs that rose from $2 to $5 may now be stable at $5, but that doesn’t undo the financial strain. Similarly, rent increases, car payments, and insurance premiums have often reset to new, higher baselines.

Beyond pandemic-era disruptions, several longer-term trends are reshaping economic realities:

• Housing affordability has become a major concern, particularly for younger generations. A combination of underbuilding over the past decade, rising mortgage rates, and institutional investment in residential real estate has priced many would-be buyers out of the market.

  
  

• Labor market realignment is also underway. While wages have risen in some sectors, they have not always kept pace with inflation. At the same time, many industries are struggling with worker shortages, leading to new dynamics in employee bargaining power, union activity, and automation investments.

  
  

• Household debt is increasing again, especially through credit cards and “buy now, pay later” services. This indicates both consumer resilience and financial vulnerability, depending on how repayment patterns evolve.

  
  

  
  

This economic moment is not necessarily one of crisis, but it is one of recalibration. Households are adjusting their spending habits. Governments are revisiting fiscal policies. Central banks are walking a tightrope between controlling inflation and avoiding recession. And businesses are adapting to a more cost-conscious consumer base. Meanwhile, the disparity between financial markets and everyday economic experience remains stark. Despite the pain felt at checkout counters, major stock indices have shown resilience, buoyed by strong corporate earnings and optimism about artificial intelligence. This disconnect raises important questions about equity, access, and the long-term sustainability of the economic system.

The sensation that “everything feels more expensive” is not an illusion—it’s a reflection of deep and ongoing transformations in the global economy. While inflation may moderate and certain prices may stabilize, the experience of economic insecurity is likely to persist for many unless broader structural issues are addressed. These include wage stagnation, housing shortages, and the uneven distribution of economic gains. Understanding the forces behind price increases isn’t just an academic exercise. It’s a vital step toward engaging more effectively with the economic systems that shape daily life. In a time of volatility and uncertainty, economic literacy is not only empowering—it’s essential.

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• (Photo by Dominik Lückmann on Unsplash)

~ Thank you, FinanciallyLit, for this well-written, insightful article.