Inflation, explained simply — and what actually causes it

A few weeks ago my daughter Ellie — she's ten, and she notices everything — watched me put a carton of eggs in the cart and said, "Those used to be, like, a dollar." She wasn't complaining. She was just doing the thing kids do where they say the quiet part out loud.

And I opened my mouth to explain it, and... I didn't really have an answer. I had a vibe. I had the same vague "everything's expensive now" feeling everybody has. But I couldn't actually tell my kid why.

That bugged me enough that I went and figured it out. This is what I found — written the way I wish someone had explained it to me. No jargon for its own sake. Just what inflation is, what causes it, and which causes are actually doing the heavy lifting right now.

What "inflation" actually is

Inflation is a sustained, broad rise in prices over time. Two words in there matter.

Sustained — not a one-off jump. Eggs spiking because of a bird-flu outbreak isn't inflation by itself. That's one product having a bad year. Inflation is when the average price of the stuff in a normal week's shopping goes up — and stays up.

Broad — across lots of things, not just one or two. The government measures it with a basket of about 80,000 specific prices, weighted by how much normal families actually spend on each thing.

Here's the way it finally clicked for me. Inflation is the dollar quietly losing its grip. A dollar in 2019 bought about two-thirds of a dozen eggs. Today it buys about a third. The egg didn't change. The chicken didn't get fancier. The dollar in my pocket just got weaker.

That's also why "what causes inflation" is such a slippery question. You can blame the price — something shoved it up. Or you can blame the dollar — something made it worth less. In the real world it's almost always both, and economists spend entire careers arguing about the mix.

The five honest causes

When I dug in, I was relieved to find there are really only five ways prices go up in a sustained, broad way. Every "cause of inflation" you'll ever read about is one of these, or some blend.

1. Demand-pull — too many dollars chasing too few things

The classic one. When people want more of something than the economy can make at the current price, the price climbs until enough people give up.

Picture my kid's school bake sale. Forty cupcakes, forty kids, everyone gets one, a dollar each. Now imagine every kid shows up with a five-dollar bill instead of a one. Still forty cupcakes. The price is going up until sixteen kids decide they're not that hungry.

In real life, demand-pull shows up whenever people suddenly have more money to spend — tax cuts, stimulus checks, raises — or when borrowing gets cheap, or when some pent-up urge finally releases. (The post-pandemic travel rush was a textbook case. Everyone wanted the same beach at the same time.)

2. Cost-push — making and moving stuff got more expensive

Prices also rise when the things producers buy — materials, energy, labor, shipping — get more expensive. The producer either eats the cost, passes it on, or splits the difference.

This is what happened to bread a few years ago. Wheat got expensive when Ukraine's harvest was disrupted. Diesel for the delivery trucks got expensive because oil markets were a mess. Bakeries were paying more for workers. Stack it all up and a loaf of white bread crossed two dollars a pound — a price it had stayed well under for most of the previous decade.

3. Supply shocks — something just broke

Close cousin of cost-push, but worth separating. A supply shock is when there's suddenly less of something — not because it got pricier to make, but because less of it exists or can move.

The egg thing I couldn't explain to Ellie? That's this. Bird flu forced the culling of roughly 100 million U.S. laying hens across two waves. That's a huge chunk of the country's egg-laying capacity, gone in a matter of weeks. Eggs went from about $1.40 in 2019 to well over $4 a dozen at the peak.

Same story, different aisle: U.S. cattle herds recently sat near their lowest levels since the 1950s after years of drought. Fewer cattle, pricier ground beef. The math isn't complicated once you see it.

4. Monetary expansion — more dollars in the system

The dollar's value depends partly on how many of them are floating around compared to the stuff they can buy. When the central bank — the Federal Reserve — creates dollars faster than the economy can make goods, each dollar buys a little less.

The Fed expanded the money supply hard in 2020 and 2021 to keep the financial system from seizing up during COVID. One common measure of money supply grew about 40% in two years. Some economists think that was the main driver of the 2022 price surge; others think it was secondary to the supply shocks. The honest answer is "both mattered, and smart people still disagree on the ratio."

What's not up for debate: more dollars chasing roughly the same goods means each dollar buys less. That part is just arithmetic.

5. Expectations — believing prices will rise makes them rise

This is the spooky one, because it sounds circular and yet it's completely real. If workers expect prices to climb 4% next year, they ask for 4% raises. If businesses expect their costs up 4%, they price that in now. If everyone behaves like inflation will be 4%, it tends to land near 4% — almost regardless of what's actually happening underneath.

That's why central bankers talk constantly about "keeping expectations anchored." Once people stop believing prices will settle down, getting them to settle down gets a lot harder. The U.S. lived through an ugly version of this in the 1970s, and breaking it took brutally high interest rates and a recession.

So which one is doing the work right now?

Here's what surprised me most. The 2021–2023 surge was unusual because all five fired at roughly the same time. Stimulus pumped up demand. Supply chains snapped. Energy markets went haywire. Money supply ballooned. And after a year and a half of scary headlines, expectations started to drift.

That's why it ran so hot — and why cooling it off has been slow. Each cause winds down on its own clock. Supply chains healed. Money supply tightened. Expectations mostly settled. But food and energy pressures haven't fully unwound, and demand stayed sturdier than the Fed wanted, longer than the Fed expected.

If I had to put it in one sentence for Ellie: the big 2022 spike was mostly stuff breaking, the stickiness since then has been mostly people still spending, and the slow background hum underneath both is the dollar itself.

What this means for your receipt

A few things I took away, standing in my own kitchen:

Different items have totally different stories. Eggs are mostly bird flu. Gas is mostly oil markets and refineries. Electricity is mostly local grid math. Lumping it all into one word — "inflation" — is how my wife Jenna and I used to end up frustrated at the same receipt for completely different reasons. Look at the specific thing.

"Companies are just greedy" is partly true, but smaller than it feels. Some businesses absolutely used the cover of broad inflation to push prices past what their costs justified, and kept the extra margin after costs eased. You can see it clearly in some sectors and barely at all in others. It's a real piece of the puzzle — not the whole puzzle.

Wages matter, but they lag. If your pay rises as fast as prices, you tread water. The honest summary of the last five years is that wages trailed prices for about two years, then roughly caught up — but whether your household felt that depends a lot on your job, your region, and your timing.

There's no single villain. Anyone who tells you inflation was caused by one thing, and points at it with total confidence, is selling you something. Usually a political story. The real answer is five mechanisms firing together, in a mix people will still be arguing about long after Ellie has kids of her own.

What you can do is stop trying to win the argument about who caused it, and start looking at which prices in your basket actually moved — and which of those are still worth doing something about.

That's what the rest of this site is for. And honestly, it's the answer I wish I'd had in the egg aisle.