The real concern from this week’s inflation reports isn’t necessarily in the Consumer Price Index’s rise as a whole, but in some disturbing trends for the future. Frankly, the report was not surprising given the expansionary policy the Federal Reserve has been conducting in the last couple of years. Eventually those increases in bank reserves would make their way into the spending stream and begin to affect prices.
After all, a 3.9% rise in CPI right now isn’t a disaster but it’s not good, particularly given the larger increases in other categories of expenditures.
What’s troubling is that the goods in the earliest stages of production jumped the most, which might foreshadow increases in the inflation rate for the goods in the CPI down the road.
Specifically, year-to-year increases for three areas in particular might be cause for concern: Finished goods are up almost 7%, intermediate goods are up 10.5%, and crude goods are up nearly 21%.
In a paper I wrote last year entitled “Why Inflation Matters,” I noted that moderate to high inflation is one of the surest ways to cause havoc in an otherwise productive economy and to undermine most people’s standard of living, especially those in the middle and lower class and those on fixed incomes.
As such, even if high inflation is not an immediate threat, the explosion in the deficit and debt over the last few years provides a reason to remind ourselves of the problems it can cause.