Wages and prices rise as the economy improves. #inflation

Posted By on November 2, 2018

As the positive economy in the U.S. continues to grow America out of the "great recession" and rebound off the slow growth Obama years, we are seeing signs of inflation, FedFund15-18hopefully just the right amount. Wages are rising and businesses sense they have pricing power and can raise prices (their cost are up too). Consumers are seeing their new  tax savings, improved paychecks and employment confidence nibbled away after years of mostly flat inflation.

The Federal Reserve has also acted proactively and is on a path to normalizing interest rates after years of cheap money policies. Will they stay ahead of inflation … or act too aggressively and send our economy back into a recession? It is a delicate balancing act.

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The WSJ detailed a few of them in a recent article:

That Big Mac and Coke Now Comes With a Side Order of Inflation
Airlines and food makers among industries passing along higher costs, raising inflation fears

U.S. companies are raising prices on everything from plane tickets to paint, passing on to customers higher costs for fuel, metal and food after years of low inflation.

Clorox Co. said it raised prices in the latest quarter on such products as cat litter, and Coca-Cola Co. reported higher prices for the quarter. Other goods makers, as well as airlines, also have announced price increases over the past week.

The higher prices have effectively ended a long period of low inflation that led the Federal Reserve to keep short-term interest rates near zero for years.

“We think 2019 will be more inflationary than we have seen historically since the recession,” Kellogg Co. Chief Executive Steve Cahillane said in an interview Wednesday.

It is a tricky moment for the U.S. economy. Unemployment is at the lowest point in decades, and economic growth is strong. Inflation is near the Fed’s 2% target, but price rises could pick up if pressure from labor shortages and tariffs intensify in a still-robust economy. Alternatively, other factors could offset such pressures, including the stronger U.S. dollar, which makes imports cheaper.

At some point, higher prices could damp the economy’s growth. Investors worry that a pickup in inflation will prompt the Fed to raise interest rates more quickly to prevent the economy from overheating.

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Desultory - des-uhl-tawr-ee, -tohr-ee

  1. lacking in consistency, constancy, or visible order, disconnected; fitful: desultory conversation.
  2. digressing from or unconnected with the main subject; random: a desultory remark.
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