Why Do Economists Want to See MORE Inflation?

Prices For U.S. Food Staples Rise Steeply

People of a certain age who grew up with 'Whip Inflation Now' buttons, and Jimmy Carter as President are trained to think of inflation as a bad thing.  So why does the Federal Reserve want more of it?

News Radio 1200 WOAI reports that the Fed has made inserting a manageable amount of inflation into the economy is a key goal in 2018, and Elizabeth Crawford, CEO of San Antonio's Sendero Wealth Management says a lack of inflation despite strong signs of growth in the economy, is a main reason why much of that prosperity is not making its way to the paychecks of workers.

"Inflation usually drives wage growth and wage growth helps us all," she said.  "What hurts us is when inflation rises and wages don't."

What happened in the seventies to lead to 'Whip Inflation Now' was 'stagflation,' which is a rise in prices while wages 'stagnate.'  Much of that was due to the rising price of oil due to two Arab oil embargos.

But today, new technology is helping put downward pressure on prices.  Everything from fracking for new sources of oil to Walmart and e-commerce companies holding down retail prices, there are few upward pressures facing the economy.

In addition to helping push up real wages, Crawford says adding healthy, manageable inflation to the U.S. economy would also help the huge group of Baby Boomers who are now moving into retirement.  

"As you move into fixed income and as you see inflation, those fixed income assets pay you more, and that is a benefit to all of the people who are retiring," she said.

But Crawford warns that there is a new factor in the equation now as the Fed works to input manageable inflation into the U.S. economy, so the rising tide on Wall Street can start raising boats on Main Street.  That is the fact, that today, higher wages may not result in higher pay for workers.  It may simply result in faster moves toward automating those jobs.

"There are a lot of jobs that could go to robotics," she said.  "There are a lot of jobs that could go to a tablet and a kiosk."

In fact, the drive to pay fast food workers $15 an hour has jump started robotics in that particular industry, leading to new advances in machines that do everything from take orders to flip burgers.

Crawford says as the Fed looks to raise wages, it needs to tread carefully to deal with the possibility of simply helping expand the markets for new robots.

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