What's Going On Out There? #2

DavidMannaioni_CFFP

Each week I plan to post something that I glean from the pages of the Wall Street Journal for a discussion of current events. This week's topic is inflation. While the rate of inflation is declining, prices remain higher than they were prior to the surge in inflation. So, please respond to this thought - even if inflation were to return to just 2%, but the price of goods and services remain at the same levels they reached at the height of the inflation spike, what does that mean for consumers and the economy?

Eriq James

Politicians love to accentuate the good news and minimize or "spin" the bad news. While inflation is coming down, prices remain elevated.

This is because inflation is merely the rate at which prices increase. After a period of inflation where prices rise, if inflation goes to 0%, those prices that rose during the inflationary period remain elevated.

Over time, one would hope wages would increase to cover this, but people will also adjust their spending.

Steve

Prices look to continue to trend down. Several articles including from the WSJ highlight part of the inflation problem really is 'Greedflation'.

Many businesses have increased and retained high prices for profits and blamed it on inflation (one reason businesses, the market, and the economy have done relatively well more than expected).

But capitalism loves competition in a sense. And those businesses that are hungry for customers can price compete bringing prices down as more consumers decide to stop spending on wants vs. needs (core financial planning right there). Technically, this is the Fed's strategy and point as economics go. They are intentionally increasing prices and borrowing rates because they know consumers have a lot of buying power (which causes inflation) and they want to nip it in the bud at higher prices to get people to slow down and reverse inflation.

It's working thus far as inflation slows down and more people pull back realizing they can't sustain spending at these high rates. It's a cycle. The Fed is doing their job and America is getting better (and doing it better than many other countries regarding global inflation). We're winning, despite the widespread pessimism, and it is being reflected in the rising stock market for now.