Eyes on Inflation

Eyes on Inflation


Dozens of attendees. Seven sessions. Two days,
and one conference, all focused on a matter that businesspeople say they must keep tabs
on to conduct business wisely. We’re trying to make decisions on investing
for growth. So do I buy that piece of equipment today or can I wait ’til next year? And that’s,
that’s really where inflation plays a part in our particular business. Inflation impacts just about everything we
do. It impacts the pricing we put forth on our products, how we manage our balance sheet,
make our investments in cash. Pension funds are closely tied to inflation rates, etc.
So really just about every facet of what companies need to do to run profitable, successful enterprises
is predicated on having a good understanding of what inflation is today and more importantly
where it’s likely to go. How can anyone not have an interest in inflation?
I mean, if you live in America, you have to understand that that’s a fact of life. Sure, it’s a fact of life. But so are these:
Millions of Americans remain unemployed. Wage growth has been pretty modest. Inflation is
low. Why are all these businesspeople and economists talking about inflation? Truth be told, one of the first lessons the
Federal Reserve learned from the country’s most recent crisis was that nobody had a clear
understanding of the risks that had been building in the financial system. This lesson is a
reminder that even in a period of calm, even with inflation relatively low and stable,
the Cleveland Fed’s laser focus on it is critical. It’s very important for the Federal Reserve
to maintain its…keep its eye on inflation. We have the experience from the 1960s, the
1970s, when that was not the case, and for a variety of reasons, inflation rose to very
high levels. And there’s always the problem that if you forget about inflation and focus
too much on other things, we run the risk that inflation might rise to undesirable levels. The Fed, economists, and businesspeople know
that while they are investing time and effort to monitor inflation, not everyone is. As
Americans continue to press on following the worst downturn since the Great Depression,
many are still coming to terms with a new reality. I think that’s what makes it really important
to look at it today, not waiting ’til we have the spike or the crisis. Looking at it today,
analyzing the factors that can impact it, that can change it, so that we don’t reach
that point, as a global world and as a nation ourselves…so that we don’t find ourselves
in a situation where suddenly we’re facing either really high inflation, or spiking inflation,
or very low inflation. When that happens–when inflation rises and
falls markedly–it tends to command a larger, more captive audience than it might today.
Consider the mood a few decades ago. Generally, people have kind of forgot about
inflation as an issue. You go back into the ’70s and the early ’80s, when inflation was
raging, that was on everyone’s mind, top of mind. I think it’s important, though, for
people to remain focused on this. It’s very likely inflation over the next five years
is going to be a lot higher than inflation over the past five years. But it’s not just sky-high inflation people
hope to avoid. I think you have the risk of deflation, almost,
and so the idea that you ought to set the targets for inflation and try to keep it within
those targets, I think, is very important. Not only is there a concern about inflation
being too high, there’s a concern that inflation might be too low. The attention to inflation matters particularly
because inflation is a process that builds over time. It would be really unfortunate
to have to deal with rising and more volatile inflation and to have…to have the research
being done at a time when things are not the way you want them to be. This is the best
time to be trying to learn as much as we can.

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