Inflation Explained- Why Your Coffee Costs More This Year

By: Sunwoo Lee

What is Inflation?

Inflation is the rise in the overall price of goods and services over time.

When inflation is high, your money loses purchasing power, meaning you pay more for the same items.

Inflation can be caused by several factors:

• Demand-pull inflation: Too much demand, not enough supply

• Cost-push inflation: Rising production costs (like wages or raw materials) push prices up.

• Built-in inflation: Businesses raise prices to keep up with rising wages, which then fuels a cycle of more price increases.

Governments and central banks, like the Bank of Canada, try to keep inflation around 2%. But global events, such as the pandemic, supply chain disruptions, war, and climate issues, have pushed it much higher in recent years.

So... Why Does Coffee Cost More?

Let's apply this knowledge towards a more simple item, like coffee:

1. Higher Cost of Beans: Climate change has hit coffee-growing regions hard, reducing harvests and pushing up prices.

2. Supply Chain Issues: Fuel prices, transportation delays, and import/export complications mean it costs more to move those beans around the world.

3. Wages and Rent: Coffee shops are paying more for labor and rent, so they charge more to cover costs.

4. Packaging and Equipment Costs: Even things like cups, lids, and espresso machines cost more now.

All of these factors feed into inflation- and your $4 coffee becomes $5.

Final Sip

Inflation is something you feel every time you buy lunch, fill up your car with gas, or grab your favorite drink. It’s the quiet rise in cost that adds up fast. So next time your barista hands you that pricier cup, you’ll know: it’s not just coffee- it’s economics.