El Dorado News

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November 19, 2018
El Dorado News Times
Shea Wilson

Shea Wilson

Stability in prices and a dart for inflation target

By Shea Wilson
This article was published February 11, 2018 at 5:00 a.m.

After feedback from last week’s column, I decided to take a look at another economic issue not covered in the recent State of the Union speech — inflation. And no, I’m not talking about President Donald Trump’s ego — or many others in Washington.

A local reader expressed enjoyment of the column and suggested the topic of inflation as a followup. The focus last week was on the need for Americans to have more details about what was not said during Trump’s speech, like tax plan specifics and the ramifications of a stock market decline, among others.

“Trump has shown his fear of a devalued dollar,” the reader said. “That, combined with somewhat advanced interest rates and increased inflation could well be his death knell. The tax bill provisions are tied to all these features.”

Merriam-Webster defines inflation as “a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services.”

Among Trump’s biggest proposals are plans to cut taxes and spend more on infrastructure, which economists say would be good for economic growth. But the economy is in pretty good shape, so these measures could result in inflation.

Inflation has benefits to the federal government. It allows debt to be paid back with cheaper or devalued dollars. It gets tricky, however, because the Federal Reserve has to maximize its debt-reduction benefits while maintaining a picture of economic health.

Viola! Economic stimulus. You have more money, so you spend it on stuff you wouldn’t normally buy. Take those tax returns, breaks and credits … Spend, spend, spend. Economic boom.

The reality: You may have more money, BUT it buys less.

The U.S. Inflation Rate, which is for the preceding 12 months, is calculated by using the current Consumer Price Index. That data is published monthly by the U.S. Bureau of Labor Statistics. The inflation rate in the United States averaged 3.27 percent from 1914 until 2017, reaching an all time high of 23.70 percent in June of 1920 and a record low of -15.80 percent in June of 1921. The average rate in 2017 was 2.13 percent. The rate in 1980 was 13.5 percent; the rate in 1990 was 5.4; the rate in 2000 was 3.4; and the rate in 2010 was 1.6. Historical data can be found at at: http://www.usinflationcalculator.com/inflation/historical-inflation-rates/.

When doing research on inflation, I saw where one economic commentator said 2 percent was the ideal rate of inflation because it is the long-run average. The person observed that people are more willing to spend and invest and transact normally, when the economy is operating normally.

In a nutshell, stability is key. That means stable prices and targeting inflation — and recognizing that more money isn’t more if it is worth less.

Shea Wilson is the former managing editor of the El Dorado News-Times. Email her at melsheawilson@gmail.com. Follow her on Twitter @SheaWilson7.

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