Originally posted by KelvinC:
Originally posted by robs:
Originally posted by Prof_Fate:
I can't see how in the hell the govt says inflation is essentially what it was a year or even 2 ago. I've seen food and gas go way up, as well as postage and UPS shipping, the framing stuff I buy, albums - so far most print prices have been stable but I'm not expecting that to hold much longer. |
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The rate of inflation is reduced when an economy enters into recession. To stimulate the economy, expansionary monetary policy is used and interest rates a lowered. This encourages inflation to rise, unemployment to decrease, and the economy to pull out of recession.
I'm having a hard time to navagate the Federal Reserve's website, but I know that most Western nations like to have their inflation at 2% and never want to see it move out of the 1-3% range. As the United States is in a recession, I am assuming their inflation would be bellow 2% and interest rate would be droping to incourage spending and raise the rate of inflation. |
Two points to make here:
1) Inflation does NOT always go down during recessions--"stagflation" can occur, generally as a result of sudden price shocks in a commonly used commodity (in this case, oil). Since petroleum and petrochemicals are used in so much of our society, it causes upward price pressures, when prices are being inflated by speculation in the markets, the pressures of supply and demand don't work as usual, eventually productivity declines, jobs are lost but the cost of goods continues to inflate. Not a pretty situation, this was the case through much of the 1970s (incidentally this was also the last time there was a severe oil price shock, but for a totally different reason). One of the things some of us are quite worried about with what the Fed is doing is by loosening the money supply even further and dropping interest rates, they are only postponing a market correction and will make it larger and more severe when it finally comes. Of course if they didn't do what they are doing the housing market would go completely belly up and along with it some major banks, and this IS an election year in the US after all...
2) Inflation numbers reported by the US include total inflation and what is called a "core" rate, which excludes energy and food prices. While the core rate I'm sure has some meaning for economists as it takes out the two most volatile parts of CPI, for those of us in the real world it's kind of meaningless, as we all must purchase energy and food. Generally the core rate is significantly lower than the total inflation rate, so guess which number the government likes to talk about most? :-/ |
