Have you ever wondered why your corner store visits get more expensive? Why have your lunches out on Fillmore Street become more expensive compared to a few years ago? Why are parents paying more for annual tuition? 

Above is a chart showing the price increase for white bread over time from 2005-2025. While there are some fluctuations in the prices, there is a general upward trend. In 2005, a pound of bread cost $1, now it costs $1.93. 

This chart shows the increase of rent prices since 1940. Average rent used to be $27 per month in 1940, now it is $1,397. This increase in prices is called inflation. 

The question on everyone’s mind is: why? Why does the cost of everything seem to rise month after month? Is it the result of greedy corporations squeezing every last dollar from consumers? Or is it driven by government policies like minimum wage increases? 

In reality, the answer is more complex than it seems. At its core, the driving force behind inflation is systemic: the U.S. government consistently spends more than it earns each year. 

The image above depicts the U.S. government’s deficit every year. As you can see, the last surplus the U.S. had was over 20 years ago in 2001. What does this mean? This means that every year the U.S. borrows money, they get driven further into debt. 

Trillions of borrowed dollars are flooding the economy. All this new cash coming in circulates and ripples throughout the economy, rising prices. An increase in money supply is not the only issue created from the excessive federal deficit, it is however, one of the most important. 

Having a deficit isn’t necessarily a bad thing, in fact, borrowing money is one of the most important drivers for economic growth. The issue arises when the money is being spent unwisely. An injection of money into the economy is okay as long as the money is being put to good use. If the money can produce more goods, create value, and boost economic productivity, the injection of money would be offset. But borrowing too much and putting it towards unproductive activities, is when inflation becomes a problem. 

During the Coronavirus pandemic, the U.S. government gave out hundreds of billions of dollars in stimulus checks. The idea was to keep the economy alive and productive, but since there was a pandemic, there wasn’t enough production and growth to keep up with the influx of cash. More purchasing power with no increase in production led to an 8% rise in inflation, one of the worst in recent history. 

Many administrations have attempted to solve this problem, but now more than ever the effects are starting to take a large toll on the economy. The current administration is making the federal deficit a top priority, attempting to cut government spending drastically. Can our government find a way to cut down America’s debt? Or are we going to keep spending and dig the nation’s economy into a deeper hole?