In the United States, producer prices were the Highest in January than they have been in over a year. This is due to health care costs and hotel accommodation along with machine and vehicle production. The producer price index increased .5% last month. There was also an increase in consumer prices in January. These rises have economists worried about our inflation rate as the US is trying to reach their desired 2% inflation. The Fed decided to leave interest rates alone in January and delay monetary policy measures another year. What do you think there is to worry about as producer and consumer prices rise?
3 comments:
I think it depends on how rapidly prices rise, and if there are other economic indicators fluctuations alongside. If there is mild inflation accompanied with higher GDP and growth, I believe the economy can accommodate it, but if the increase in prices are related to increased costs of production it might be hard to determine. Since inflation is at such a low point right now, I think there is still room for potential mild increases in inflation.
I believe that rising producer costs will produce higher amounts of deadweight loss, unless it is offset by equal increases in GDP like Sophia mentioned. I also think it depends a lot on consumer confidence as well if consumers are still willing to pay higher prices due to increases in the costs of production.
While your comments were more directed at the near future, I think that falling interest rates and very low levels of inflation could make a huge impact in the future of the financial sector. As we become more and more of a digital society and prefer to use physical cash less and less while requiring cyber security more from the financial sector, I believe that one day we may see negative interest rates on financial accounts in our lifetime (we pay the bank to hold our money). This would be very different for many US citizens but it definitely is a possibility to worry about.
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