Name: Fortune Explains: Inflation
Uploaded: 2021-06-24
Duration: 6 min 7 s
Description: Fortune Video Producer Devin Hance explores the intricacies of inflation as told be a couple experts.

Fortune Video Producer Devin Hance explores the intricacies of inflation as told be a couple experts.

Fortune Explains: Inflation

Features

Mhm. Alright. Like black by looking idea for you. Yes. Hi, May I please have one small black coffee? How much is it? 2 15. Better be some good Duffy. I'll tell you that. That's my 81 year old grandfather Ricardo. I took him for a drive around town so I could get his take on current prices of common goods and services. He's seen the impact of inflation over multiple decades. My best memories having a cup of coffee and paying five cents or a cup of coffee. Good coffee. Fresh, good coffee at a deli. Seeing a price of coffee, a cup of coffee at $2. 15 cents. It's fine, blasting. All right now to the gas station. What's the cheapest you've ever paid to get? The cheapest ever? In the seventies? I remember paying 29 cents for a gallon. 29 cents. I can easily stop But I can't stop buying gas goods and services including stuff like getting your hair cut. What you did was painful, paying $35 For a haircut. $25. I give the lady a $10 tip that's expensive, but at least the haircut looks good. I interviewed a man from the Bureau of Labor Statistics, He goes into inflation and why the cost of something like a haircut has gone up over the years. I've never heard anyone at the gas pump complains that filling the car's tank this week cost less than it did last week. The impact of price change depends on your perspective. If your stylist charges more to cut your hair, you may not be happy about that inflation, but if she ends up making more money, she likely is happy. So inflation is a continuing or sustained increase in the level of prices of goods and services from the average of all prices declined month after month. That's deflation since people tend to be more concerned when the prices they pay, a rising upward price change or inflation gets the most attention. I have never seen anything go down, prices of everything has always been on the upswing. Well, you know, there are a variety of factors that cause prices to rise. Sometimes an increase in the price of a commodity like oil will have a really big impact. Oil is refined into other products like gasoline and jet fuel. So the increase in the price of oil uh pulls up the price of shipping, which results in higher prices for many other goods. Other times, an unexpected increase in demands can boost prices. For instance, during the covid pandemic, so many people are renovating their homes. The demand for lumber is outpacing supply, causing lumber prices to rise, rents are ridiculously high. Now I remember paying $770 $68 for an apartment monthly, then kept going up and up. And of course the gas and lumber. Those do mean things that have gone up like ridiculously fast. The US. The Federal Reserve tries to achieve a modest inflation rate of 2%. Our price stability goal is 2% inflation over the longer run, and we believe that having inflation averaged 2% over time will help anchor long term inflation expectations of 2% moderate inflation is often a sign of economic growth. The high inflation usually indicates an overheated economy prices rise too quickly, especially while wages don't catch up, then the purchasing power of each dollar decline or our money doesn't go as far as it used to. Similarly, inflation can reduce the value of people's investment, particularly people on fixed income. That's why Social Security has a cost of living adjustment based on the consumer price index that we calculate right here at the BLS the stock market seems to be more volatile when inflation is a fear. In my opinion, it's because people don't like uncertainty. The stock and the bond markets are simply investors. People are excited about uncertainty when it comes to innovation, but otherwise I don't think they really like it during this time of reopening. We are likely to see some upward pressure on prices, but those pressures are likely to be temporary as they are associated with the reopening process. In an episode of one time price increases as the economy reopens is not the same thing as it is not likely to lead to persistently higher year over year inflation into the future inflation at levels that are not consistent with our goal of 2% inflation. I'd like to point out that while we think of inflation as a condition that consumers experience at the gas pump and the grocery store businesses experience inflation to at the BLS our producer price index and import price index help quantify that when businesses face inflation related to their input costs, they have, they have choices to make that include absorbing the changes in costs or passing them on to consumers or some combination of both. For instance, a reduction in earnings, which in turn can affect the businesses stock price or it can make a change to employee pay or in the number of its employees. People care about their money. It's one of the most important things that they care about. Um So therefore inflation really does matter to them. A young person may require a mortgage in order to purchase a home so she wants interest rates to be low. While a senior would prefer a high interest rates in order to get gained from keeping his money in a savings account or in CDS. Some economists think we're headed for inflationary time. And if so, we may be surprised at the decisions will have to make about her money and how we spend it. Thank you, grandpa. Yeah, that's it. All right. Uh huh.