Good and Bad Inflation…

Johnny-on-the-Spot … by John Foster

Is all inflation bad?

There was a time the only inflation I was worried about was connected to the air in my bicycle tires.

I just knew by squeezing my tires if I was good to go.

Hardly scientific but I could never find a tire gauge when I needed it.

Today, though, I’m dealing with a different kind of inflation.

What kind?

Well, there was a time about a year ago I could fill up my truck’s gas tank for under $40 and today, $50 won’t do it.

Better gas?

I doubt it.

The word “inflation” is a noun and the 2nd definition of it is “a general increase in prices and fall in the purchasing value of money”.

The first definition is regarding putting air in those tires.

How bad in inflation today?

I think I saw a figure of 7.5% for 2022, which compares to about 5% in 2021 and 1.23% in 2020.

I’m not an economist but it appears to me, inflation is rising.

What’s at the root of this inflation?

An increase in the money supply, such as increasing the minimum wage and financial “stimulus” programs might be the reason.

There’s more money available but it loses its purchasing power.

When demand exceeds production, that’s “demand-pull inflation”.

When production costs hike prices, that’s “cost-push inflation”.

There’s a third.

It’s called “built-in inflation” when prices and wages rise.

The latter relates to a childhood memory I have.

In nthe early 1960’s, my Father gathered all of us around the dinner table to announce he was going to get a big pay raise; he would be earning $10,000 a year.

Mind you, this was a family of 6. My parents were buying a house, we had two cars and even a boat.

When we heard Dad’s announcement, one of my sisters asked, “Does that mean we’ll be able to get Oreos every week?”

Can you imagine trying to raise a family on $10,000 a year today?

Forget milk and bread, much less Oreos.

Fat chance Lance!

But, if memory serves me right, we were paying about 25 cents for a gallon of gasoline and Mom could buy several loaves of bread for under a buck.

Economists will tell you that $10,000 in 1975 is equivalent to over $46 thousand in 2018.

Many economists will tell you an annual inflation rate of between 2% and 3% in “tolerable.

Two years ago, the inflation rate was 1.23% and we were hovering fearfully in our homes, trying to figure out the COVID-19 virus.

In 2021, the inflation rate was about 5% and so far this year. we’re at about 7.5%.

That means a pay raise to $15 an hour is being lessened by higher costs for products and services.

The current inflation rate is the worst it’s been since 2008.

However, it could be worse.

A lot worse.

In July of 1946, the nation of Hungary’s “hyper-inflation” reached 13,600,000,000,000,000%.

That’s 13.6 quadrillion percent!

There was a time in Hungary that year when the rate of inflation doubled prices EVERY 16 hours.

In 1923 Germany, bread started out costing 250 marks but it rapidly rose to 200 million marks.

That’s a lot of dough for a product made of dough.

So, we don’t want any inflation, right?

Not necessarily.

Low inflation can be a signal of economic problems because it can be associated with a weakness in the economy.

Supply chain disruptions anyone?

Zero inflation is generally welcomes by “average” consumers benefitting from cheaper prices and the “feeling of” more disposable income.

Sometimes, this all comes off to me as “economic doubletalk”.

The only inflation I’m certain of is tire inflation.

Did you know that at least 28% of us drive a vehicle with at least one under-inflated tire?

Statistics reveal that 95% of tire failures are due to under-inflation.

Those same statistics show that less than 1 in 5 of us properly check and inflate our vehicle tires.

This despite the fact that most newer vehicles will display your tire pressure on the dashboard.

Bu I wonder how the availability of air pumps and the ease of using them impacts that?

I’m old enough to remember “free air” and just about every gas station.

They didn’t have doughnuts, fresh coffee and snacks, but to could easily air up your tires in those days.

You might be able to get a package of salted peanuts and some chewing gum but you didn’t have to get a handful of quarters from the cashier and then do the “air up dash” before your 34 PSI investment runs out.

I suppose you noticed gas prices are a bit higher too.

Well, driving with properly inflated tires can increase your gas mileage by 3.8% on average.

That’s “good inflation” just like the economic kind.

When inflation helps boost consumer demand and consumption, thus driving economic growth, we can live with that.

But when you need a monthly payment plan to buy a 2 by 4, uh, Houston, we have a problem.

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