Balancing the Books

Is inflation headed higher?

Public Domain. Source: Pxhere

One of the most challenging financial pressures on all of us is inflation. It’s hard enough to balance our household budgets without prices going up all the time. When I was growing up in the ‘70s, our family was roiled by rising prices for groceries, clothing, and just about everything else. It was hard for businesses to plan, too, as managers couldn’t tell if what they could charge for their goods could keep up with the cost of production. Economists now call that time of rising prices, “The Great Inflation.”

But as bad as inflation is, deflation is worse. Falling prices mean that producers may lose money if they grow. There’s little incentive to take any risk, as your money gets more valuable even if it’s literally just stuffed in a mattress. Companies fail as the price they receive for their goods go down. Both significant inflation and deflation are bad for all of us. It’s hard for companies to invest, and economic growth stagnates.

That’s why the Fed is so concerned about inflation, about finding a healthy balance. And on that score, they’ve been remarkably successful for most of the past decade.

Source: Dallas Fed, Department of Commerce

Measuring inflation accurately is difficult, but economists prefer to use a core measure, without the highly volatile elements. If the price of garlic doubles one month, we can switch to using ginger powder in our cooking.

When we look at core prices, they’ve been increasing between 1½ % and 2% per year for the past seven years. And there’s no evidence that inflation is headed significantly higher or lower. When it comes to planning, it doesn’t get much better than this. Overall, most of the prices in the economy are fairly stable. The rising cost of tuition has been balanced by falling prices for transportation and computers.

Inflation may be a lot like ice cream: everyone has their favorite flavor and topping. But no matter how you measure it, inflation looks pretty stable right now. And that’s been good for consumers, good for business, and good for the markets.

Photo: Lotus Head. Source: Wikimedia

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2018-09-12T06:07:26-04:00September 12th, 2018|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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