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When Is Inflation Good for the Economy?

Typically inflation and higher prices are considered bad, but can they be good for the economy? Inflation is one of the oldest concepts in economic theory, but experts still struggle to decipher its actual role in the market. It is often seen as a financial plague, which can ruin entire nations if it gets out of control. Price inflation means that prices have increased in the economy, usually due to monetary inflation, i.e., an increase in the money supply. Some of the most inglorious … [Read More...]

December 2021 Inflation 5 Times as High as Last December

The Bureau of Labor Statistics reported Record High Annual Inflation Rate in December.
Annual Inflation highest since June 1982.
CPI Index rose from 277.948 to 278.802.
Monthly Inflation for December was 0.31%
Annual inflation for the 12 months ending in December was 7.04%.
Nov. 6.81% — Oct. 6.22% — Sept. 5.39% — Aug. 2021 5.25% — July 2021 5.37% — June 2021 5.39% — Jan. 2021 1.40%

At just 1.40% inflation in January 2021 was still in the VERY LOW category. But a year later it is in the high category having multiplied over five times in a single year. As you can see from the chart below current levels have exceeded the July 2008 peak of 5.6%, and the October 1990 Peak of 6.29% putting us halfway up the slope to the March 1980 peak of 14.76%. This is virtually identical to June 1982, when inflation hit 7.06%.

Spoiler: The FED Guaranteed To Fight Inflation… Sooner Or Later

For nine months now we have known that Inflation was becoming a problem despite the fact that the FED denied it and initially said the problem was only “transitory”. During that period the FED continued to massively increase the money supply via “Quantitative Easing” (QE). In our article Why Quantitative Easing is Inflationary… Sometimes we saw that QE is inflationary when there aren’t counteractive deflationary forces. We also saw that this time around QE had resulted in a massive increase in the money supply.

Soaring Inflation Can Skyrocket Your Insurance Costs

Insurers and actuaries attempt to make accurate estimations based on the trajectory of the current economy while looking to history in order to predict what the shape of the future might look like. If inflation persists, so too does the potential of higher payouts from insurance companies. Thus insurers attempt to adjust premiums to account for inflation and maintain a reasonable cushion against claims.

However, health insurance premiums have increased much more rapidly than prices in general. Auto vehicle insurance increased from 2008 through 2018 but then leveled out until 2020 when vehicle insurance rates dropped drastically.

Why Quantitative Easing is Inflationary… Sometimes

Quantitative Easing was initially considered inflationary but after its first usage, it didn’t appear to be. Is this always the case? Is Quantitative Easing really inflationary? Will the Quantitative Easing of 2020-2021 result in more inflation? That is what we are going to look at here.

Millennials Have Never Seen Inflation This High

The earliest millennials were born in 1980 just as we coming off one of the highest inflation spikes the U.S. has seen since they began tracking the CPI in 1913. In March of 1980 inflation topped at 14.76%. By May of 1982, it had fallen to 6.9% which was the last time inflation was higher than today’s 6.81%. Of course, there’s a big difference between the peak in 1980 and current levels, but as we discuss below, there is still the possibility that inflation will climb higher from here.

Without looking at inflation-adjusted prices it is difficult to see where gasoline prices actually stand. Back in 1918 gasoline was $0.25 a gallon and by 1932 prices had fallen to 18 cents a gallon! But as we all know over the last 100 years the purchasing power of the dollar has fallen drastically so in order to get the true picture we can’t just say that the lowest price of gas was 18 cents per gallon, we need to adjust the price for inflation. When adjusting for inflation there are two prices… the first is called the “nominal price” and that is the actual price you would have paid for gas at the pump. The key price though is the inflation-adjusted price which calculates what the price would have been if we were spending current dollars on a specific date. In this case, we are basing our calculations on the value of a dollar in January 2020.

Inflation Adjusted Housing Index since 1890

Inflation Adjusted Real Estate Prices- Lets take a look at the idea that housing prices always go up. Of course, each neighborhood is different, so some neighborhoods might be going down while a few miles away housing prices are skyrocketing but by looking at the nationwide average we can get a better picture of the overall trend. The St. Louis Federal Reserve publishes the following chart that shows the S&P/Case Shiller National Home Price Index and by adjusting those prices for inflation we can get a better picture of how real estate prices really act. Is a home a good investment or not?