An Inflation-Free Era? Think Again

By Bonnie Erbe, Thomas Jefferson Street blog

The Federal Reserve's decision to begin scaling back emergency measures to support the economy is coming too soon, according to many economists. They rightly fear that the economy is only being held together by government sustenance (in the form of stimulus funds) and historically low interest rates. I agree with that. But I have one foot in the other camp: I'd love to see interest rates come off historic lows as I'll never invest heavily in the stock market again. I rely mainly on interest-sensitive investments in my portfolio and they have offered ridiculously low returns for a long time.

I do take major issue, however, with something said by one economist, and backed up by government data: that we are not suffering from a bout of inflation. The New York Times reports:

"Despite the extraordinary fiscal and monetary stimulus injected into the economy, many prices are still stagnant or declining," Dan Greenhaus, chief economic strategist for Miller Tabak, wrote in a research note on Friday. He added, "The pricing situation still remains fragile."

When I see statements such as this one, I wonder whether we're living in parallel universes or even on the same planet. Let me ask you a question: does anything you buy regularly cost what it did five years ago, or even close? Have consumer items become cheaper in the past year? Gas is up, groceries get more expensive by the minute, even real estate prices have not dropped to where they were, say, 6 years ago nor to a place where they seem to make sense given the average American salary. In other words, the government and economists may tell us we're living in an inflation-free era, but I don't believe it. The facts show otherwise.

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