Tell Me about Inflation

We remember periods of inflation, stagflation, and recession that affected our family budget when we first married and at various times since then. Interestingly, some of our younger friends and family never experienced mortgage rates in the double digits, food coming in black-and-yellow “generic” boxes, or inflation pushing grocery prices up faster than wages could keep pace. And the idea of inflation playing the role of a tax increase, as politicians use cheaper dollars to pay for their spending plans, might be a new concept to our younger voters. With all of this in mind, the article linked below provides a partial introduction to inflation in the US economy and to some of the factors that might influence or drive inflation.

As you can see from the chart, as bad as inflation seems to be shaping up for the near future, we have definitely seen worse. Those willing to learn from history can gain insight from things that triggered inflation (e.g., energy shortfalls) and from failed attempts (e.g., price controls) to bring inflation under control.

Inflation seems simple: we pay more for gasoline, groceries, or a Big Mac, and a week or a month later we find ourselves paying even more. But inflation is more complicated than it first appears, and it does not help that the various talking heads in industry, corporate media, or government rarely discuss the full picture. For example, what is the role of monetary policy or government spending in inflation? Seems like some people don’t want to discuss that possibility. Sometimes the talking heads appear to be in denial, but if you lived in a gated community with a room full of gourmet foods and other people doing your driving, shopping, and bill-paying, then maybe denial is not really surprising. Regardless, the article linked above does provide a good introduction to the topic, although you should probably take their projections with a grain of salt. While you can still afford salt.