Pattie Lovett-Reid: Why 'a little inflation' is good for you and the economy
HUNTSVILLE, ONT. -- What does inflation mean to ME.
It depends on if we are talking about a little inflation or blistering hot inflation.
I would love to see a little inflation in the economy. To me that signals an economy that hasn't been operating at full capacity and is starting to ramp up. In other words, demand is higher, consumption is on the uptick, and this in turn drives economic growth and job creation. I see a little inflation as a sign of hope and economic prosperity.
But the key words are "a little inflation."
When inflation is low it can help us personally, at the same time it's boosting our economy. A win/win. It helps your money to keep its value and makes it so much easier to plan on how, where and when you spend.
That is not what we are starting to see. In an environment where Central Bankers have been printing staggering amounts of money, inflation is likely only going to get hotter and, so far, it is playing out in commodities prices for everything from wheat to cotton, corn to lumber, and more.
The fact is, even with higher prices, we aren't seeing a bubble form as commodities are coming off ridiculously low levels.
However, as inflation goes from ticking moderately higher to blistering hot, prices tend to go up when the demand for goods and services is more than the economy supplies.
In other words, if you are doing a home renovation and projected costs were planned a year ago, you likely didn't factor in the current skyrocketing prices of lumber or copper. The unexpected cost overruns can be devastating to your pocket book and can impact your standard of living. You simply don't have money to spend on other things like you once did.
Higher prices makes it more difficult to know what your day-to-day costs will be.
However, before you panic when hearing about higher commodity prices, I think it is important to remember we don't buy commodities directly. What we do buy are goods manufactured by way of consumer products. We buy clothing not cotton, we buy gasoline not crude oil, even products like corn and wheat are processed into food that we buy.
Sure, we will see price increases, but manufacturers don't always make consumers pay the full increased cost of a particular commodity. Value is often created in other ways such as packaging, processing and even design.
Ultimately you will pay more, but you will not likely have to absorb the full cost increase. However, even modest prices increase requires planning, budgeting and maybe postponing the timing on goods and services until prices start to moderate.
When inflation strikes and demand is high, rates typically start to inch higher and can make it hard for people whose incomes don't keep pace with the rising cost of goods - particularly pensioners and those with low pay. Once again, planning is key.
In a perfect world, price changes happen more slowly so we don't have the wild swings in how we spend, save or invest - price stability is the end goal.
We are watching, and so are Central Bankers, to see if the spikes we are seeing are temporary or stickier, and when the timing is right rates will start to go higher and we all need to plan accordingly.