Watch Out for Inflation

A few of us remember the 70's and 80's when inflation was around 10%.  When I started work, I was disappointed if I did not get a raise of 15 to 20% and I expected my rent to go up about 10% per year.  President Nixon was so worried about inflation that he passed wage and price controls, and he was a Republican.

USA Inflation % per year

For the last 20 years, inflation has been low.  Drastic increases in interest rates by the Fed (Volker) slowed inflation.  Then, productivity increases due to technology (Internet, wireless, computers..), globalization, and other factors have kept wage and price inflation under control.

Right now we see a perfect storm:

• low unemployment in the USA and many other countries
• economic growth in the USA and globally
• fiscal stimulus in the USA from tax cuts and debt increases
• employers unable to get workers in the USA, immigration being reduced
• plenty of money in the financial system due to past stimulus, quantitative easing
• endless war in Afghanistan and Iraq

This should cause an increase in inflation, but so far we don't see it.  No one seems to know why based on my reading of financial media and listening to Bloomberg.  Every "expert" says something like "I can't explain why inflation is low but I think .."

My opinion is that we will get much higher inflation starting in a year or two, perhaps sooner.  There are too many factors that will drive up wages and then prices.

Disclaimer: this is not professional investment advice and should be used at your own risk. The author is not a licensed financial advisor. You should not believe everything on the Internet including this blog and should check multiple sources possibly including a professional financial advisor before making decisions.