Why do economists say we need inflation anyway?

Jul 14, 2017

Inflation has been consistently lower than the Federal Reserve’s target of 2 percent. Fed Chair Janet Yellen highlighted this fact in recent congressional testimony. Most consumers and business owners would just as soon see inflation remain low: consumers can afford more goods and services without having to earn higher wages, and businesses never like to raise prices, especially in a global market where consumers can so easily shop for the lowest price online. But many economists would like to see stronger inflation in the economy right now — it would be a sign that the tight labor market and low unemployment are driving wages, and thus prices, higher. But not any time soon, apparently. The Consumer Price Index was unchanged in June, with core prices, excluding food and energy, rising 0.1 percent, and annual core inflation was unchanged at 1.7 percent.

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