Understanding the difference between good and bad inflation

Understanding the difference between good and bad inflation


Howard Greene: There’s been a lot of talk
lately about inflation, where it’s been, where it’s going and what’s healthy versus not healthy
inflation. The Fed’s target on inflation remains around
the 2% level. It was a bit of a conundrum to Janet Yellen
on the way out the door why inflation hadn’t picked up yet at this point in the cycle. But yet, we seem to be inching closer to 2%. It’s probably a healthy level at this point
in the cycle. There’s always discussion about good inflation
versus bad inflation. Imparting some degree of wage gains into the
economy as the labor force gets tighter and the unemployment rate gets lower is probably
a good thing. And it’s best if that’s accompanied by productivity
growth. Things that would be bad inflation would be
inflation that comes through due to supply disruptions, such as a dramatic shutdown in
the supply of oil, causing that to spike. That would not necessarily be a good thing. Obviously, we’ve had sort of the first shot
in what I think to date is maybe a very minor trade war. But the introduction of tariffs have some
disruption to the logistical supply chains out there, and carried to a larger extent,
that too could lead to some higher and perhaps non-desirable inflation. But away from that, everything seems very
well maintained at this point. We’re inching closer to 2%. If we get meaningfully higher than that, I
would think the Fed would get a little concerned and move more quickly, but there’s nothing
in my radar screen that indicates that’s happening as yet.

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