DENNIS SEID: The economy improves, and we pay more

By Dennis Seid/NEMS Daily Journal

It seems just about everything is going up in price, whether we’re at the grocery store, the Gap or the gas station.
Inflation, it seems, is slowly creeping.
But that’s supposed to be a good thing. More on that later.
Anyway, the economic wonks at the U.S. Labor Department said last week the Consumer Price Index rose 0.4 percent for the second month in a row, while over the past year it’s risen 1.6 percent.
Core prices, which exclude what economists call “volatile” food and energy costs, rose 0.2 percent, the largest increase in more than a year. And over the past 12 months, core prices have increased 1 percent.
But you don’t need a bunch of economic eggheads to tell you that it costs more to buy stuff.
Gas prices are often used as a barometer for how things are going. And prices, at least in Tupelo, had been flirting with $3 gas for several weeks. Most stations in Tupelo stayed under that $3 benchmark, at $2.99, up until Thursday, when prices went up 4 cents. The wailing and gnashing of teeth ensued.
Meanwhile, folks in Oxford and Starkville said, “Welcome to the club.”
At least we’re not at $4 gas.
Adding insult to injury, Wendy’s announced last week that tomatoes would be given to customers only by request. A massive freeze in Mexico last month killed off much of the crop, and tomato prices have doubled. If the situation sounds familiar, it’s because a freeze in Florida last year did the same thing.
Food prices climbed 0.5 percent in January, the most in more than two years. If you buy milk, eggs and juice on a regular basis – and not just when snow is in the forecast – this is old news.
Also last week, the Associated Press reported that clothing prices would rise about 10 percent in the coming months because of higher demand and increased raw materials and labor costs.
We’re also paying more for tires, travel and rent. The list goes on.
Your wallets and purses might not like it but, believe it or not, rising prices are welcome signs.
According to economists and other experts, moderate inflation is good for the economy in the long term.
For one thing, higher inflation helps makes U.S. exports cheaper because it makes the dollar cheaper. More exports means U.S. factories are churning out goods, which means they’re putting people to work.
With rising prices, people will tend to buy things now, rather than later. And businesses, seeing that goods are selling for more, can increase sales and profit.
That, in turn, allows them to hire more workers, pay workers more or perhaps do a little of both.
Thus, economists say moderate inflation often leads to increased wage growth. Let’s say inflation is at 4 percent. A business could raise employee pay by 2 percent, and still “save” 2 percent. That’s better for everybody.
So according to economic theory, that’s how moderate inflation is supposed to work and help the economy.
But let’s be honest: Everything sounds great in theory. We’ll just have to see what happens, won’t we?
And hold the tomato, please.

Contact Dennis Seid at (662) 678-1578 or at dennis.seid@journalinc.com. Follow him at twitter.com/dennisseid and at nems360.com/pages/bizbuzz.