What is “this”? It’s called inflation. Many of you have never seen it and don’t really know what it is. You will begin to, if you haven’t already, hear more about inflation. As your Gen X friends will tell you, in the 70’s and early 80’s inflation was high. Mortgage interest rates at 15%+, yes that’s right you know those rates that are 3% or less now? Goods and services, in proportion to income was very expensive. Gallon of gas in 1980? $1.19 a gallon. I know doesn’t seem like much does it?
Not a lot of corollas back then, hybrids? Didn’t exist yet. You had gas guzzlers that were getting horrible gas mileage. Median income for a family in 1980? 21,000.00 Annual. However, the consumer price index from 1977-1980 increased 13.5%. That means, basically (not precisely) that the item you bought in 1977 was 13.5% more expensive just 3 years later. Now this wasn’t everything of course but it was inflation that was out of control.
Enter 2021. Notice the housing market is hot? Have you been to Home Depot to buy some plants or fencing for your yard? Prices are on average 6.5% higher than 2 years ago (for many goods and services not all). Now this is a result of covid, plus people going back to work plus government stimulus. So we have the trifecta of an inflationary period, increased government subsidy (more money in the market) more people working (more money in the market) and industries shut down for extended periods.
That in essence is inflation. Inflation is a good monetary solution to one or both problems. Meaning if prices are going up, demand is high (or goods are in shortage) that induces economic activity in those areas. A deep freeze in Florida kills the orange crop, oranges go up in price. Everyone gets 1000 in cash from the government, you are willing to spend more for the oranges now because someone gave you more money to spend. That gives the person producing the oranges more money to reinvest in orange production, increasing the supply and driving the cost down, overtime.
The issue here is time. The simple examples I have given are all in the abstract of time meaning the end game, increased production of oranges as I exampled, could take years. Now if the money supply decreases (the gov stops sending stimulus) you still have to pay the higher price for the oranges. This ushers in the inflationary period. The other lever that mitigates this scenario is increased wages, this is likely to happen as more and more of the world opens up.
In the short term you should expect to pay more for goods and services. It is a sellers’ market so to speak and if you have a skill or service that is in demand (construction, physical labor, lawn care etc.) this is an opportunity for you to make a lot of money. On the flip side, things you want are going to start costing more. That coffee you love every morning? The trucking company delivering to your shoppe is paying more in gas now, it’s likely that cost will transfer to how much your coffee costs.
Inflation is the reality of a good economy going through a natural ebb and flow. It’s not fun when things go up in price, unless you’re the one selling the item and making more money. I believe we are entering into an inflationary period, many of you have never seen it and will wonder what the hell is going on. $3.00 a gallon for gas? Very likely. Remember to keep an eye on your spending and keep an eye on wages for your chosen profession. It’s likely that as costs go up, so will wages but you must be willing to leverage your skill set (and possibly move jobs) to make more to mitigate the costs.
I think we are heading for a good period for workers, things are opening up and there will be good jobs to be had. The down side is inflation is starting to creep in and it’s been so low for so long I don’t think we can escape it this time.
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