Before diving into the topic, let's start with the question: What is inflation? Generally, it denotes the continuous rise in the price levels that can lower the purchasing power of your money. However, in more layman terms, it is the rise in the prices of commodities, and the income in your hands will allow you to buy fewer items or products. As far as the US's inflation is concerned, the United States has been successful in maintaining its inflation at less than 2 percent. However, in recent years, the influx in the supply of money may be a trigger for the rate of inflation.
Efforts are being made by the federal reserves to increase the rate of inflation, and the rapid rise in the supply of money may lead to a greater than expected increase in the level of inflation. Analysis of the 2020 money reserves in the US suggests that a boom in the supply of money stock-also referred to as M2- could be seen. The increased supply implies that there will be an increase in the level of inflation.
The COVID-induced lockdown also plays a crucial role in the increase in the money stock or M2. During this period M2 has shown an ascending trend, even reaching 25%. The state is well acquainted with the fact that such a boost in the money supply is gradual, and people will take a more extended period of time to adjust to a higher level of money supply. They will also adjust to this by purchasing commodities.
However, despite all these facts, should we be concerned about inflationary warning signs? The answer is no. Right now there is no crystal clear evidence to demonstrate that the inflation rates will rise significantly. In the quest to find solid evidence revolving around the rise in inflation, the state evaluates food and energy prices to regularly check for it. After a critical review, it was found that there was zero percent inflation in October and November. In December the inflation rate rose to 3 percent. This shows volatility in the inflation rates.
After an in-depth examination of the inflation rates, state authorities have concluded that the rates of inflation could rise in the future. The bond market, specifically the Treasury bond market, is also speculating about the rise in inflation level. Nevertheless, this particular bond market also deals in inflation-adjusted bonds. This means that it may not be a reliable way to gauge the changes in inflation rates.
The prices of gold and silver are also a good indicator of the measure of inflation. Comparatively, the increase in the price of silver is higher than the increase in the price of gold. However, the crucial factor to note is that the prices of these assets coupled with housing prices and the money held by the general public show a general increasing trend in the prices. This demonstrates that in the future, the rate of inflation will undoubtedly increase.