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Inflation: Come out, come out wherever you are

Federal Reserve Board Chairman Ben Bernanke

In Washington today, the Federal Reserve committee responsible for monetary policy kicked off a two-day meeting.

It has been a rocky few weeks since the Fed's last meeting. There was the government shutdown, of course, and the debate over raising the debt ceiling. Because of that, no one is expecting any big changes from the Federal Open Market Committee after it wraps up its meeting tomorrow, which means the Fed will probably keep buying bonds, putting money into the economy.

But that doesn't mean the Fed and plenty of economists are not keeping a close eye on inflation.

“Inflation” is a word that, for most of us, does not have positive connotations. Maybe you think of high gas prices or high interest rates. 

“The type of concerns that people have about inflation are usually associated with inflation that’s unpredictable, and inflation that’s moving around quite a bit,” says Ann Owen, Henry Platt Bristol Professor of Economics at Hamilton College.

What the Fed wants is some inflation, so long as it is fairly moderate and stable.

“That gives businesses some room to raise the prices on their products,” says Kevin Jacques, the Boynton D. Murch Chair in Finance at Baldwin Wallace University. “That gives prices on real assets the opportunity to go up, which would make, for example, consumers feel wealthier because their homes are now worth more.”

Moderate inflation can also help the labor market. Owen says that’s because companies dealing with inflation may be able to hire more workers.

“If you are making $10 an hour, and inflation goes up a little bit, the value of what the employer is paying you is a bit less,” she explains.

The Fed has said it wants inflation to be right around two percent. That’s lower than the historical average, which is about three percent.

Owen says that, when it comes to managing inflation, policymakers have a tricky job.

“The concern is that, once you get inflation accelerating, that that momentum is going to keep it going beyond where they want it to be,” she says.

About the author

David Gura is a reporter for Marketplace, based in the Washington, D.C. bureau.
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Weird, I just came back from the grocery store that used to have broccoli for a buck a pound about a year ago and now it's $2.50. I'm signing up for next year's insurance where *my* premium has gone up 14% (and copays too). I don't know where it is that this no-inflation nonsense comes from,I'm not seeing no-inflation. Do I really want to pay 25% more when I replace my car in 7 years? No. I'll just postpone that purchase. You can thank my insurers for taking all those premium dollars in the intervening years. I can't even cut out coffee to make up for the increased insurance premiums. I never did drink *that* much coffee.

This story is horribly out of touch with the realities faced by most Americans. Sure, businesses can justify raising their prices but we're not able to buy as many of their products because the median household income is in decline. And while yes, home values may go up, a lot of good that does the millions of people who lost their homes to foreclosure in recent years. And as for inflation being good for labor? To that I can only say you must be insane. Wages have gone down for many and even for those of us with good jobs, we're not getting raises. So yes, businesses can hire more people but they will be paying them less in practical terms and the guy standing next to the new hire just had the real value of his salary cut.

This is the most BS laden piece of nonsense I've ever seen on Marketplace. In every statement, you state only one side of the coin. If inflation is 2%, the business can hire more because they only pay $.98 on the $1. Sure, and when the employee takes the paycheck to the market, a $1 buys only $.98 of inflated goods. $1=$1 and $.98=$.98, so what's the fuss? All of us who've saved, oh, yeah, there are only four or five of us suffering fools out here, paid $1 for savings and now get $.98 back, that's who! Inflation is pure BS and always has been.

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