What inflation? Oh. That inflation...

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From the Washington Post:
Inflation inflicting pain, as wages fail to keep pace with price hikes
Inflation is back, with higher prices for food and fuel hammering American consumers, and this time it really hurts.

It�s not just that prices are rising � it�s that wages aren�t.

Previous bouts of inflation have usually meant a wage-price spiral, as pay and prices chase each other ever upward. But now paychecks are falling further and further behind. In the past three months, consumer prices have been rising at a 5.7 percent annual rate while average weekly wages have barely budged, increasing at an annual rate of only 1.3 percent.

And the particular prices that are rising are for products that people encounter most frequently in their daily lives and have the least flexibility to avoid. For the most part, it�s not computers and cars that are getting more expensive, it�s gasoline, which is up 19 percent in the past year, ground beef, up 10 percent, and butter, up 23 percent.

Inflation is typically the symptom of an economy overheating. Workers can�t keep up with the demand for the vast array of things they make. Abundant dollars pursue scarce goods and services, forcing prices and wages up. The solution is simple enough: Central banks, such as the Federal Reserve, increase interest rates, applying brakes to the economy.

But the current price spike is in some ways more pernicious than the last great U.S. inflation � the steep increases of the 1970s � and harder for policymakers to address. Today, raising interest rates might make a weak economy even weaker, stifling what meager growth there has been in wages. Moreover, higher interest would make the nation�s massive budget deficits even more expensive to finance, taking an additional toll on the economy.
Welcome back Carter - stagflation at its finest. The silver lining is that Regan came next. Oh, and this little note:
Few would argue that the U.S. economy, with its 8.9 percent unemployment rate, is overheating at the moment. Rather, the global economy � in particular developing nations such as China and India � is growing so rapidly that it�s straining the available supplies of all types of raw materials.
Jeeezzzz -- if you put these people to work mining/drilling/fracking/harvesting some of our huge wealth of resources, we could have a nice positive cash-flow to our Nation. Instead, we are promoting Petrobras (a company that G. Soros invested heavily in) to drill off Brazil to provide us with our oil.

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This page contains a single entry by DaveH published on April 5, 2011 8:38 PM.

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