Inflation and Interest Rates
The Problem with that Thinking (Only a Spike) is Once Prices Go Higher, it is Very Difficult for the Retail and Labor World to Lower Prices
By Bryan Doherty, Successful Farming
Agriculture.com - 7/16/2021
There has been some debate as to whether the Federal Reserve should raise interest rates to cool the economy. At least it seems there is debate within the Federal Reserve. Most of us have probably experienced higher prices in almost every avenue of our spending. Gasoline prices are higher, lumber prices are higher, food prices are higher, labor costs are higher and consequently, the value of our dollar is eroding. The debate seems to be that due to post COVID-19 supply disruptions, higher prices are reflective of limited availability in the short term and not necessarily a sign of long-term inflationary concerns. It is just a spike. Central bank officials in June suggested a 3% gain in 2021 and 2.1% the year after. This week, the New York Fed’s survey of consumer expectations over the next 12 months jumped to 4.8%.
The problem with that thinking (only a spike) is once prices go higher, it is very difficult for the retail and labor world to lower prices. It takes a mass decline in commodity prices or other inputs to believe that inflationary concerns are only temporary…