Why Living Became Expensive after the Pandemic
How supply shocks, demand surges, and global events reshaped the cost of everyday life in 2022.
Hey, everyone! My name is Jordan, and I have a Ph.D. in Economics from the University of Pennsylvania. I want to ask important questions and answer them meaningfully using the hard work economists have put into their research. If you learn anything interesting from this, please like, share, and subscribe!
I love cooking and baking. Growing up in a rural Southern home, my mom and grandmother taught me classic Southern and Cajun dishes, which inspired my love for making food. Over the last decade I’ve sharpened those skills and branched out to other cuisines. But in the past three years, grocery prices have soared — especially the price of free range eggs.
What makes simple animal products like eggs so pricey to get to the store? Well, even eggs follow a production process. First, a farmer (or officially hatchery) must purchase young chickens to raise until they eventually begin laying eggs. They need to house and feed these chickens as the produce eggs. The eggs must be washed, sanitized, and processed by equipment, cleaner, and machinery, which also requires energy. Workers make sure the quality of the eggs are sufficient, which requires detailed work and follows government regulations. Then, the eggs are packaged in a plastic or molded pulp and have to be very carefully transported by a refrigerated truck. This means the entire process depends on the following:
Making sure the chickens stay healthy and alive, which includes buying feed
Maintaining and using energy for the machinery needed to wash and process the eggs
Paying workers to wash and inspect eggs
Packaging the eggs with material
Paying for the eggs to survive transportation, which requires expensive refrigerated trucks
Eggs are simple, but if even one of these dependencies breaks down, they become much more expensive to produce and transport. Most of the U.S.’s eggs are domestic as well. Now imagine how much more complicated the production process for other goods can become, like packaged meat or coffee from other countries. When one part of the supply chain breaks down, overall supply will decrease. We saw this happen with the pandemic, and the effects lasted for years as they propagated through entire international supply chains
In March 2020, COVID-19 impacted the entire world. Lockdowns began, people fell ill, and jobs were split into “essential” and “nonessential.” This meant people who worked in places like manufacturing facilities, hospitals, and grocery stores had to show up to work in person. Despite all preventative measures, working in person led to getting sick more often. This led to labor shortages, production bottlenecks, delays, and a shortage of goods, especially where demand was prevalent. This not only affected eggs but also most groceries, gas, and household furniture and appliances.
Inflation jumped in the years that followed, peaking in 2022 at levels not seen since 1980. Below is a graph that shows inflation rates over the years. It uses a measure in economics called the Consumer Price Index (CPI), which measures how much a “typical basket” of goods and services costs for a person; you can think of this like putting a price tag on all the things an average American buys. The percentage change in the cost of this basket is how we measure inflation; if the same basket costs $100 this year and then $110 the next year, that is a 10% increase in prices and an inflation rate of 10%. In 2022, inflation hit 8% for the year.
Many people in the U.S. felt inflation hit in 2022, which was a big point of contention in the 2022 and 2024 elections. But this inflation wasn’t just felt in the U.S. It was felt across much of the world, including Europe. Below is an animation of the year-over-year increases in CPI for each country. You may be thinking that the basket of goods is different for each country. If you are, you’re right. This is not a perfect measure. When comparing countries, it is mainly good for visualizing changes in prices for the average household in a country, not exactly what they are able to buy.
Inflation in and of itself is not necessarily bad. However, when prices for goods and services rise faster than the money people bring in from work, people aren’t able to purchase as much. In general, a low, consistent level of inflation is common and desirable for the economy, since it boosts economic activity. The Federal Reserve is in charge of targeting the interest rate (federal funds rate) to balance inflation and economic output to ensure economic stability. The graph below shows how the price of things increased more than income in 2022.
When we think about prices rising, we need to think about them in terms of the supply and demand. The supply is how much of all goods and services businesses are willing and able to sell, and the demand is how much people are willing to spend for these goods and services. Where supply and demand meet each other is the backbone of most economic models, no matter how simple or complicated.
As a quick recap if you haven’t taken any economics courses in a long time (or even at all), we have a supply curve, which is a line that shows how much businesses will sell at different prices, and we have a demand curve, which is a line that shows how much people will buy at different prices. When prices increase, businesses want to sell more, but people want to buy less. On a graph, these two lines meet at the point where the price and quantity of the item work for both buyers and sellers. (All this is usually taught in the first week or two of an introductory economics course.)
Now, let’s think of this example in terms of eggs mentioned at the beginning of the article. Before 2022, U.S. farmers produced about 113 billion eggs a year, and that output matched what people consumed at a certain price — this is called the equilibrium quantity. But if a pandemic makes production harder, say by limiting packaging or refrigerated trucks, farmers produce fewer eggs at every single price. This shifts the supply curve left, leading to higher prices and fewer eggs sold. Economists call this a supply shock. Below shows how prices and amount could both increase from this.
With that being said, the price increases in 2021 and 2022 happened because supply problems were made worse by rising demand. I will get to that point later, but first, I will explain how the COVID-19 supply shocks (and other shocks in the pandemic-era) happened.
The Supply Story
COVID
COVID-19 disrupted global supply chains, creating widespread bottlenecks that pushed up prices. Some research shows that about two-thirds of overall inflation in 2021–2022 came from these supply chain problems (think supply shocks) and rising energy costs. The paper that found this highlights the difference between core inflation, which is a long-term measure of inflation that doesn’t include food and energy, and headline inflation, which includes volatile items like food and energy. The gap between the two reveals how much shortages and higher energy costs drove prices upward. A follow-up paper confirmed this pattern, but also noted that the U.S. faced additional pressures beyond supply chain issues like government spending.
Another paper found that the early stages of this crazy inflation era — namely the beginning of 2021 — were concentrated in certain sectors (think manufacturing industries for goods like food, furniture, or even makeup) where shortages were most severe, but these effects lingered over time. Combined with higher energy prices, these sectoral price hikes contributed significantly to the broad rise in inflation across 2021 and 2022. Below shows exports each year compare to 2019.
Some papers study just how sensitive inflation is to supply chain disruptions. One paper created a metric that measured bottlenecks and production lags, finding that shifts in this measure could explain around 60% of how much inflation moved away from the expected trend. These bottlenecks raised import prices, which filtered through to people directly and to businesses who relied on imports. These bottlenecks even influenced inflation expectations, magnifying the impact. Rising shipping costs made it more expensive to move goods around the world and further intensified the effects on inflation.
Russia’s Invasion of Ukraine
Then, in 2022, Russia invaded Ukraine, and Russia cut gas pipeline deliveries to the European Union. While Ukraine itself didn’t export much to the world, the lack of access to the pipeline drastically increased gas prices for the European Union and even impacted the rest of the world. This very well contributed to the shortages already being experienced post-pandemic. The addition of this war’s impact on energy prices and availability contributed to the perfect post-COVID storm.
Avian Flu
As if the pandemic and Russian invasion didn’t already produce historic economic shocks, North America faced another supply shock: the avian flu. In 2022, it killed 40 million egg-laying hens (and returned in 2024), though egg production fell by less than 5%. The spike in egg prices wasn’t large enough to meaningfully raise overall inflation, but, like gas, eggs are a basic item that consumers notice. Eggs make up only about 7% of spending on meat, poultry, fish, and eggs, though they can influence the cost of packaged goods like bread. Still, the broader rise in grocery prices was driven mainly by high energy costs, COVID-era shortages, the war in Ukraine, and even the 2022 La Niña.
The Demand Story
Shift from Services to Goods
During the pandemic, people began demanding goods like furniture, cars, and personal care items over services like going out to eat and going to the spa. Many of the goods with increased demand were already experiencing a decrease in supply. If we put this on a graph of supply and demand, an increase in the demand curve would also increase prices — just like a decrease in supply. One study I mentioned earlier even found that much of the price surge came from this jump in demand on top of existing shortages.
Government Spending
Government stimulus also added to the supply-and-demand pressures. During the pandemic, U.S. adults received up to $1,200 and children up to $500 in relief checks. Research shows these transfers raised both income and inflation by looking across different countries; the more generous the support a country gave its citizens, the bigger the effect. Another study found that cash payments in particular had a strong impact on driving up prices.
Workers
Another potential explanation deals with the demand for workers. If the demand for workers is high compared to the supply, economists call this a tight labor market. What this means is wages increase for workers, which could also lead to inflation. While this could be the case, the paper I mentioned earlier that broke down all the potential causes found this effect contributed some but didn’t really explain much. And one paper found that high, unexpected inflation itself can make the labor market appear tight, as people begin to switch jobs to try and get higher paying jobs.
Greedflation?
After the pandemic, some argued that companies used the mix of shortages and strong demand as an excuse to raise prices and boost profits; this was called “greedflation.” The claim was that firms could say, “Sorry, we have to charge more because of the supply problems,” while actually making higher profits. One paper noted that profit margins rose at the same time as prices. However, the study didn’t prove that companies were causing inflation; it only showed that the two happened together. Still, the idea caught on and even appeared in a popular Youtuber’s video.
The idea that prices may rise more than supply and demand alone would predict isn’t entirely new, and researchers had noticed related puzzles even before the pandemic. For example, output prices tend to go up twice as much when input costs rise compared to how little they fall when input costs drop, possibly because of how businesses manage and adjust their inventories.
At the same time, the pandemic hurt many small firms, so this could have reduced competition for larger companies. This is related to the idea of “market power,” which is a topic for an entirely different post. But overall, one U.S. study found that higher markups (the price of the good minus the cost of the good) weren’t a major driver of inflation; instead, most profits came from other sources beyond simply charging more above costs, like government aid at the time. Still, this area needs more research.
Where Are We Now?
By early 2025, inflation had mostly eased, thanks in part to the Federal Reserve raising interest rates (federal funds rates) and the fading of pandemic-related supply and demand shocks. But new challenges have emerged, including another outbreak of avian flu and a wave of tariffs. These factors, especially tariffs, are driving up the cost of certain goods again. Whether overall inflation rises will depend on how many goods the tariffs impact and the actions the Federal Reserve decides to take. Past evidence from the tariffs introduced in 2018 shows they tend to raise the prices of targeted goods. This can happen when businesses pass the cost onto consumers or when more goods begin to be produced domestically (in the U.S.).
Even as the economy has mostly recovered from the pandemic, many households still feel like life has gotten more expensive. Nearly one in three Americans say inflation is their top financial worry, which may be a reaction to the frequent increases in grocery prices. These lingering effects were fueled by powerful supply and demand shocks across goods that even impacted supply chains on other every day goods. This is strong evidence that even in an interconnected, complex economy, basic economics is fundamental to explaining many real world outcomes such as rising prices of things we buy every day and even rising egg prices.
A very simple TL;DR: The pandemic caused a lot of issues for businesses trying to make things like furniture, makeup/skincare, groceries, appliances, etc. by causing workers to be sick, lockdowns to stop production, and the logistics of scheduling ships to become messy. There were other factors, too, like the avian flu and Russia invading Ukraine. These issues are called supply shocks, and they decrease production while increasing prices. At the same time, people began demanding more of these goods as well, which made prices go even higher. Now, we may be seeing the prices of some goods rise with the effects of tariffs.